Congress looks for a solution -- or at least the appearance of one -- to a problem it created.
Congress returns today to another self-created economic crisis. There will be a lot of high drama on this before they go home for Christmas. Congress has built a mountain of debt, scaled the top, and found that the road back down leads only to a cliff. Now the lemmings -- like Wile E. Coyote, scrambling on thin air -- are wishing for a safety net for themselves -- and, theoretically, our economy -- to catch them before the economy tumbles into a deep recession on January 1.
Before we can understand what's going on in the back-room negotiations, we have to examine the crisis. What is it, how bad is it, and how can it be resolved?
The "fiscal cliff" is a creation of Congress and President Obama. They've already enacted, primarily in the so-called "Budget Control Act" of 2011, a whole raft of economic measures that will go into effect on January 1 unless Congress and Obama can agree on ways to prevent our economy from going over the fiscal cliff they created.
In short, here's what will happen on January 1 unless the lame ducks and Obama make a deal.
First, the Bush-era tax cuts will expire. Which means, for those of us who pay taxes, that the rates will rise from the current 10-35% to 15-39.6%. Long-term capital gains taxes will rise from 15 to 20%. Dividends, now taxed at a lower rate than regular income, will be taxed at the regular income rate.
Second, there are the Obamacare taxes. Investment income will be subjected to a new, and additional, tax of 3.8% to fund Obamacare (and advanced medical equipment, such as CAT-scan machines, will be subject to another separate tax; there's also the "Boehner" tax on tanning beds).
Third, the estate tax will rise from 35% to 55%. So if your estate is valued at more than $5 million, your heirs would benefit greatly if you die before the ball falls in Times Square on New Year's Eve. The new rate will be imposed on much smaller estates, those over $1 million.
Fourth, the wonderful world of sequestration will come upon us in January if Congress and Obama don't act. Sequestration will cut government programs across the board -- damaging our defense, perhaps irreparably -- and reducing some domestic programs. Social Security and Medicare are exempt from sequestration because the Dems and the unions insisted. Those two programs, of course, are what drives our national debt. The debt cannot be reduced unless they are tamed.
Finally, the payroll tax reduction, another "stimulus," will expire on December 31.
As the Congressional Budget Office has forecast, if we fall off the fiscal cliff and all these tax hikes come into effect, we'll be in a below-zero growth economy. Which, by definition, is a recession. Unemployment will grow much higher because industries will lay off many more people than have already been cut. In defense alone, one George Mason University study says that about 1 million jobs will be lost due to sequestration over the next decade.
All told, that's a pretty high cliff to run off.
Congress -- looking for an easy escape -- will probably try to concoct another "if-then" deal of the kind I warned against in 2011 when they were crafting the Budget Control Act. To recap, an "if-then" deal is when the Republicans agree to something that takes effect immediately -- such as a debt ceiling hike or a tax increase -- in return for a Democrat promise to agree to future budget cuts. And, if the past umpteen such deals are a predicate, when the time comes for the Dems to agree to something that will actually happen, they renege.
Before they even get to the "if-then" deal, Congress is apparently considering an increase in federal spending in the fiscal cliff negotiations. Yes, you read that right. In the fiscal cliff negotiations, our wonderful congressional leaders may end up increasing government spending.
Thanks to Sen. Jeff Sessions (R-Ala), ranking Republican on the Senate Budget Committee, we know some of the details. In a November 20 letter to McConnell, Boehner, Reid and Pelosi, Sessions raised a big red flag.
"It is my understanding," he wrote, "that some of the items that may be raised in your fiscal negotiations would increase spending above the levels projected under the Budget Control Act and therefore need to be offset through reductions elsewhere." The items Sessions cites are a one-year continuation of extended unemployment benefits, a continuation of the 2% payroll tax reduction, and modification of the rates paid to physicians under Medicare, which would increase federal spending to a total of $137 billion more than the Budget Control Act allows.
(Page 2 of 2)
Any increase in federal spending would be simply bizarre in any fiscal cliff deal. For that reason alone we should expect it to happen. And the dealmaking is likely to get a lot worse.
The vultures are already circling. One example already leaked is that some are advocating an increase to the federal gasoline tax. For every one of these vulture tax initiatives that is reported, there will be thirty we don't hear about until after the deal is made.
The outlines of a fiscal cliff deal are easy to forecast, though the details are not. Obama is determined to raise taxes on the rich, and he will probably succeed. His success will be attributable to the urgency that Republicans helped build into the earlier legislation. If they hadn't agreed to the last "if-then" deal in 2011, and hadn't agreed to the automatic nature of the tax hikes in January, they might have avoided this mess. But now they have little leverage: Obama is newly reelected and the calendar is inexorably moving toward January.
Middle class taxes will rise as well, but will be hidden under various disguises such as the Obamacare taxes, dividend taxes, and such. To let the Republicans save face, the Dems will agree that it'll all be stuffed into another pillow sack "if-then" deal.
The Republicans will agree to some tax hikes now in return for entitlement reforms that won't take effect for years to come. The unions -- who are demanding no change in entitlement programs -- will feign outrage at one part of the deal that pretends to make future cuts knowing well that the Dems will not let them happen. And the entitlement program reductions -- maybe in the form of "means testing" or indexing to lower rates -- will be put off for five or ten years.
The Republicans will give up more than they should. "What else can we do?" they'll wail. Actually, a lot can be done if they're willing to take the risks that come from failing to make a deal. It's a risk they have to take.
First and foremost, they have to refuse another "if-then" deal. Anything they agree to -- which shouldn't include any tax hikes or the expiration of any prior tax cuts -- must all take effect now. To the extent that future cuts to entitlement programs and any other government spending are included, these cuts should have to take effect on a date certain. And -- to prevent any Democratic backpedaling -- the legislation should provide that any modifications to the entitlement reductions would have to survive a supermajority vote in both the House and the Senate. By so doing they can make any future action to cancel the cuts very hard to do.
The flip side of this is the sequestration problem. Even if the fiscal cliff deal changes sequestration for 2013, there are still nine more years of sequestration coming -- automatically -- unless the sequestration mechanism is changed. The Dems don't want to stop sequestration on defense, but they do want to stop it on domestic programs. This isn't going to be easy, but the Republicans need to repeal the whole sequestration mechanism so we don't have to do this again and again.
And, lastly, the House Republicans need to keep in mind that come March, they'll have to face another debt ceiling increase. They will have a lot more leverage then than they do now, so it's important to not give in. It'll be easier to force real spending cuts in the next round if -- and only if -- they are willing to risk a government shutdown. That's the only real leverage they have, and -- to date -- they've been unwilling to take the risk.
There is NO fiscal cliff and it is a term of convenience to panic the public.
The government has been borrowing money to pay bills for years, they bankrupted social securitiy starting with Reagan administration and every single president got worse.
This did not just happen, Obama is the biggest spender after GWB.
The problem is the same braindead politicians who are not fiscally responsible are in control.
Both parties are to blame. I do think men like Paul Ryan are willing to take on the task of keeping the books balanced.
There is a movement and I am redundant here to socialize this country and change its format. The progressive politicians did this on smaller scale with many states, e.g. CA, VT, MA, RI and all are in the red. Some are worse than others.
They are blinded by ambition and they fail to see the small scale experiments on the state levels do not work well.
Imagine, every state like these socialized states and all dependent upon federal monies.
Problem is the borrowing from China and the printing of money.
No one audits the Federal Reserve; so it is a game of chance, gambling, house of cards, etc. It will tumble down and that is the intent of radial progressives.
Shelia: I think they are more blinded by ideology rather than just ambition. You are right that both parties are to blame and the GOP suffers from RINO "performance anxiety" frequently which is why we don't have the Bush era tax cuts permanent from the beginning and a totally stupid "deal" for the debt limit increase "negotiations" last year. The alleged GOP "leadership" only has themselves to blame for being in the position they're in and another bad deal isn't going to improve their situation. Boehner has been a huge disappointment as Speaker and has backed himself in a corner with his statements and past actions. I do think the like of Ryan are willing to do some serious budget and spending modifications but are hampered by the Senate that at best blocks everything by Hoary Reid's dictates even when the Senate GOP leadership tries to push decent proposals that come from the House. Then there is the problem with our Dictator in Chief who just demagogues and threatens to kill anything that comes his way that isn't what he wants. In addition to this mess we all know it isn't going to do anything put increase the red ink so just wait for the VAT, carbon tax, and pension fund grabs waiting in the wings. Of course since the major players on both sides of the aisle are economically clueless, the economy will tank even more, defense spending cuts and the effects of the taxes will cause more unemployment, revenues will be far less that "projected", more "investment" and "income transfer" spending will be proposed, and the Fed will print more money until the whole shaky house of cards collapses even sooner. Seizing wealth like pension and retirement funds will really make the end brutal for many.
I hear you John and it is dismal. I don't think people will accept seizure of their pension/retirement funds.
There is no strong leadership. I heard Newt on Greta's show last night and he spoke the truth. No backroom deals, stop calling it a fiscal cliff and propose gradual steps to tackle the problem. Newt has his problems but he was excellent in the House and he started playing way too many games which tainted his name.
There is always a solution to any problem but to blow it up into chaos is inciting anger and panic which is no way to address this serious fiscal mess. Both parties will be harmed and so be it because it us up to us to remember who's who in 2014.
Boehner, McConnell, Reid and Pelosi should all be put on the back burners and let new blood step up to the plate. They are dinosaurs who evoke panic, wild emotion, etc.
Sheila, it is hard to be a dinosaur when you have only been in office since 2011 I would think. LOL I do think that you are a little too harsh on Boehner. It is very difficult to beat your head against the wall time and time again; to get deals through the House and have the Senate (Reid) stonewall you every time). There are not too many avenues available and that least trying to work through bipartisan efforts. What I see is that the Republicans are willing to compromise some, but not until they have the guaranteed compromises that they require of the Democrats. That is a plus, in my opinion. Let's face it, hard line has not worked and so minor compromises now to buy us time might be an answer. I don't know for certain, but something has to happen. You would not have been happy with Romney, I am afraid as this is exactly what he was proposing to happen as well.
He knew that nothing would be accomplished without both sides making the effort. That was what he talked about all the time. So, just maybe, he was on to a good plan. Maybe Boehner is giving it a try.
I would like to see Boehner with Paul Ryan in unison. Have a strong partner, Boehner is no novice as he has been there for years.
I want Reid and McConnell gone. Pelosi gone. Give it to younger, fresher more motivated people. I am tired of these idiots. Boehner is newer in job than others; but team up with Ryan so he does not look and sound so tired all the time. Two heads are better than one.
Sheila, sorry as I was given the wrong information about Boehner. His first term in the House was 1991. Not sure why it said 2011. I think that it is up to Paul Ryan to get back in the thick of this and show his leadership. He needs to go to Boehner and offer his help, too.
Linda: I think you're right that new blood is needed but Ryan represents that new blood as do many of the TEA Party backed House members. All of them have been blocked by the alleged "leadership" by and large as they play the same old game that the've played since I can remember.
Shelia: Newt has his problems and is somewhat erratic at times but if you look at what was going on in the late 90s he was the target of the Left and the Demagogues since he killed their long run of House domination. Also, there were some in the GOP that have a problem with strong leadership that mostly pushes conservative ideas and their guns were trained on him as well. He was forced out for an alleged "infraction" that was later overturned and for something far less than the majority of the Demagogues do on a regular basis and get away with. Again a lot of this is the media and the GOP "leadership" fear of the media. Now they fail to learn since look what happens to the media's favorite RINOs like McManic and Graham when they bring up any issue that the Left doesn't want to address or where it reflects badly on a leftie or when running against a leftie like the 2008 election or the current Benghazi probe and that idiot Susan Rice. The GOP might as well bend over on this "fiscal cliff" issue and figure they're going to get blamed so make sure they do the right thing or arrange it that the Demagogues own the results. That may be passing legislation in the House to extend the tax cuts and halt the forced spending cuts for the military and when that doesn't go anywhere in the Senate then either let the whole thing happen or, better yet, let the House Demagogues pass their bill by not voting when it comes up.
They need to make sure the democrats OWN it. They cannot have their footprint anywhere near this mess. In this case, silence is golden. Let Obama, Reid, Pelosi keep talking ... loose lips sink ships.
John: I don't dislike Newt, he made mistakes but who hasn't. What I did not like was the way Romney villified Newt in the primaries; but would not do same to Obama.
He was a mouse.
Obama was a rat.
You wonder why? That mouse never roared, he was mute. I am not going to mince words anymore. There were massive errors in this GOP run. They better learn from it and not repeat the same mistakes or they will void themselves out of the running.
Obama was intensely disliked; yet he overcame it. Sure, voter fraud, dirty campaigning but that is the same old song in every election. Obama did it better.
Mitt was a nice guy but a weak candidate. He never came out strong, he never came out swinging. Obama did in debate 2 and 3 and Mitt let it go.
I am over blaming the media, the people who I think got duped as they think the same about me for voting for Mitt.
Their candidate was stronger, he ran a far better campaign and he had that computerized election down pat. He had errors first time around but no one was doing the computerized hi tech stuff in 2008.
Romney's team were a bunch of amateurs. All the money spent and they could not produce a workable program and their stats were totally wrong, while Obama's were dead on accurate.
The truth hurts, but it is the only way one learns.
A lot of people were questioning Romney's team and were displeased from Peggy Noonan to the CEOs. They were right!
We better learn from all of this and not repeat it again. I do believe there are solid, conservative, principled leaders in the republican party who will deliver the message loud and clear and not waiver as this weak bunch did.
Gov. Martinez and Paul Ryan are two people who are committed and dedicated and they live by their words. They are not all over the place. Rand Paul might be a person who is solid, it is the drugs and isolationism that worries me about libertarians. But, they have a lot of sound ideas which are valid.
Also, being flexible is important. You cannot turn a deaf ear to others who don't think like you; there is common ground and find it, appeal to them and that is a winner!
I am not giving up, I do have faith and hope and without it ... you have nothing to look forward to. Tomorrow is another day!!!
this article is from the progressive democrats and it is well worth reading, it is a better one.
It is necessary to read from the other side as well especially on this topic; but one has to be very discerning as who needs the MSNBC types who are totally out of it, preaching about the fiscal cliff.
This guy makes some true points which is what counts when doing research.
The article is interesting, Sheila, I'll give you that!!
The truth is, Republicans are opposed to all government programs. Unlike Eisenhower, Nixon, or Reagan, today's Republicans aren't just reluctant to fund these programs with new taxes. They don't want them to exist at all. That's why they want to cut them so aggressively. The "find the money to pay for it" argument, coupled with a refusal to raise taxes, merely provides a convenient cover for their hostility.
The Bush tax cuts for the wealthy expire this year, and the Republicans want to give them a new tax cut. That will require a new bill. The Federal deficit will soar if it passes.
Fourth question: Why don't they have to "offset the expense" for that? Pay Now, Pay Later
But even the Democrats' "fiscal responsibility" is based on a fundamentally flawed premise. The fact that the government is spending less doesn't mean that Americans will be spending less.
We've learned that every time that Federal support to the states has decreased, and state taxes have increased.
We've learned it every time a Federal program like student loans is privatized and the for-profit companies extract more money from Americans' pockets. (To his credit, President Obama fixed that.)
We'll certainly learn it if and when Medicare is capped and seniors have to pay even more out of their own pockets for medical care.
We learned it again just this week, when news stories came out about state plans to make up for lost Federal highway funds, which includes looking for ways to tax drivers based on the number of miles they travel.
That's a regressive tax, unlike the progressive Federal taxation system, and it penalizes middle class earners who have to commute to work. (It's also similar to the high-tech system that led to riots in Johannesburg when I was there in March.)
The motorist tax idea is a refresher course in a time-tested principle: Pay now or pay later. In many cases cuts to Federal spending will lead to increased costs for Americans elsewhere. They give Washington politicians the chance to brag, pose for photographs, and please donors. But the public pays the bill in the end.
The fiscal policy these Democrats have embraced is absolute madness, especially at this moment in history. Consider this:
Right now international markets are - literally - paying the United States government for borrowing money. The government is, in effect, receiving interest for its loans instead of paying it.
We'll have to rebuild our infrastructure someday. When everything starts collapsing - even more than it is right now - that kind of deal may not be available.
there is more to this article, if you click on link.... The republicans have to have a solidified platform and not be all over the place from RINOS to far right Tea Partyists. What happened to the Dwight Eisenhower republican? Both Bushes were not true conservatives; Nixon was not either; however, he was a smart man, even though he had his reckless moments.
The libertarians probably need to go off and start their own party as they are fragmenting the republicans. They are too staunch on their pet projects of legalizing drugs and deconstruction of the federal government on a wide-scale basis. This is not the revolutionary era of 1776 with 13 colonies anymore.
I don't know, there is a lot to think about.
No one party has all the answers.
Division is the worst thing that can happen to our country and any party guilty of that is dammed.
I enjoyed all of these, Sheila. Thank you. (especially the last post). Makes sense, doesn't it?
Interesting point of view from the Left but last I looked schools, teachers, police, firemen, and even most roads and bridges were STATE and LOCAL responsibilities. Isn't there state sales, income, and fuel taxes to support many of those activities along with local property taxes along with sales and income taxes as well in some cases. This type comment (and the Federal controls that go with the touted Federal funding) is why I've harped on the states rights issue. We are over taxed and over controlled and the best place to attack that is at the local level if the responsibilities for government "services" are largely pushed down to the local (or at least state) level where most belong. Border security. national security, foreign affairs, currency control, and defense are Federal constitutional responsibilities but just look at how terrible most of the functions have been handled especially during the rule of Dear Leader Obama and the Demagogues. In addition, it is interesting that the Left is floating "statistics" that show such a low Federal spending growth rate under Obumbler with trillion dollar deficits every year, a "stimulus" (payoff to Demagogue supporters and wacky causes like "green energy") of almost $850B 1n 2009 that has been added to the baseline budget effectively since there has never been a budget after the Demagogues put theirs in in 2009 so everything is a continuing resolution. That doesn't even address the extended unemployment compensation, extended food stamps coverage, relaxed disability requirements, ObumblerCare, expanded entitlement programs, and the effects of the economy on early SS benefit draws. What a crock that graph is!!!!!! The whole article was a crock and just the usual spend more on social programs and "investments", cut the military, and tax the heck out of anyone prudent who works, invests, saves, acts responsibly.
John: I am not buying his statistics at all. They are great at slanting Obama's figures.
I don't know what base they work off. That is where their viability ends, Obama is the biggest spender in history of the Presidency.
He makes some valid points and as I said I will read progressive stuff as long as they are more intelligent than MSNBC pundints who are outright liars.
Books are much better.
Heritage is the only source I found most reputable. Heritage think tank is honest and I enjoy their presentations on many subjects which are viable.