The White House and Congress will likely work together to avoid the combination of tax hikes and spending cuts kicking in at the same time and sending the country into a recession next year, former U.S. Congressman Vito Fossella tells Newsmax.TV.
At the end of this year, a series of tax cuts and other benefits expire while automatic cuts to government spending kick in.
The combination of the two, known as “a fiscal cliff,” could siphon $500 billion out of the economy next year alone and $7 trillion over a decade, according to some estimates.
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Many economists worry the fiscal cliff could send the country back into recession in 2013 especially after an election year, when politicians will avoid touching tax and spending issues.
Yet just like the debt-ceiling debate in 2011, lawmakers will come to an agreement and stave off disaster at the last minute, says Fossella, now managing director at Park Strategies.
"I think there will be a lot of debate between now and then but the same thing I think will happen as well. There'll be an agreement, it could be at the eleventh hour, it could be the tenth hour, it could be at the eleventh hour and 59 minutes, but I believe that there will be some agreement reached," Fossella tells Newsmax.TV in an exclusive interview.
Taxes and spending have already become campaign centerpieces.
President Barack Obama recently proposed extending the Bush tax cuts for one year but only on household incomes below $250,000 or on individual incomes below $200,000.
Furthermore, tax rates on capital gains and dividends will jump from their current 15 percent level to 18.8 percent to help fund the Patient Protection and Affordable Care Act.
Such moves won't level the playing field, as proponents argue, but will kill jobs instead, says Fossella, who served 12 years in the House as the only Republican congressman from New York City before leaving office in 2009.
"I think by imposing higher taxes on those folks who make more than $250,000 a year, while arguable and debatable, I think is not the best policy. So if I were in Congress right now, I would oppose those limitations as well," Fossella says.
With Democrats in control of the Senate and the White House, repealing the healthcare law seems unlikely, especially since the Supreme Court recently upheld its constitutionality.
Still, the debate reflects a growing need for the country to decide on the level of government influence in American business.
"I think it boils down to the difference in what people think the role of government is. It seems that by punishing success and creativity and ingenuity and smothering sort of the private sector to a degree you step in the way of the true engine of this economy, that's the American people who create the jobs, not Washington D.C. or the federal government for that matter," Fossella says.
Limited government interference in the economy doesn't mean those less fortunate will be thrown to the wolves, economically.
"Frankly, what often gets lost in debate is Americans are very giving people. If you start taking away more money, or taking money out of their pockets, as much as they would like to give, the reality is that there's less money to give," Fossella says.
"Last year alone, almost $300 billion or so was given to charity and groups across the country. Those groups would suffer if you take money out of most folks' pockets," Fossella adds.
Meanwhile, increased government spending will add to already bloated debts and deficits.
"The other side of the coin is, with our debt and deficits growing on a regular basis, the fundamental question is, are we spending too much? And I think the answer is the government is spending too much," Fossella says.
"We can pull back and if we place our faith in the American people, as time and time in the past has proven that when you place your faith in the American people it works, I think the same remedy will work the same way this time."
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