President Obama has cut his trip to Hawaii short to meet with congressional leaders in hopes of a last-minute effort to avoid the upcoming “fiscal cliff”.
The Fiscal Cliff Explained
“Fiscal cliff” is the popular shorthand term used to describe the conundrum that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.
Among the laws set to change at midnight on December 31, 2012, are the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite, a rollback of the “Bush tax cuts” from 2001-2003, and the beginning of taxes related to President Obama’s health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect. According to Barron’s, over 1,000 government programs – including the defense budget and Medicare are in line for “deep, automatic cuts.”
In dealing with the fiscal cliff, U.S. lawmakers have a choice among three options, none of which are particularly attractive:
They can let the current policy scheduled for the beginning of 2013 – which features a number of tax increases and spending cuts that are expected to weigh heavily on growth and possibly drive the economy back into a recession – go into effect. The plus side: the deficit, as a percentage of GDP, would be cut in half.
They can cancel some or all of the scheduled tax increases and spending cuts, which would add to the deficit and increase the odds that the United States could face a crisis similar to that which is occurring in Europe. The flip side of this, of course, is that the United States’ debt will continue to grow.
They could take a middle course, opting for an approach that would address the budget issues to a limited extent, but that would have a more modest impact on growth.
Can a Compromise be Reached?
The oncoming fiscal cliff is a concern for investors since the highly partisan nature of the current political environment could make a compromise difficult to reach. This problem isn’t new, after all: lawmakers have had over a year to address this issue, but Congress – mired in political gridlock – has largely put off the search for a solution rather than seeking to solve the problem directly. In general, Republicans want to cut spending and avoid raising taxes, while Democrats are looking for a combination of spending cuts and tax increases. Although both parties want to avoid the fiscal cliff, compromise is seen as being difficult to achieve – particularly in an election year. Currently, it appears that a meaningful deal won’t be reached until after the December 31 deadline.
The most likely outcome is another set of stop-gap measures that would delay a more permanent policy change. Still, the non-partisan Congressional Budget Office (CBO) estimates that if Congress takes the middle ground – extending the Bush-era tax cuts but cancelling the automatic spending cuts – the result, in the short term, would be modest growth but no major economic hit.
Possible Effects of the Fiscal Cliff
If the current laws slated for 2013 went into effect permanently, the impact on the economy would be dramatic. While the combination of higher taxes and spending cuts would reduce the deficit by an estimated $560 billion, the CBO also estimates that the policy would reduce gross domestic product (GDP) by four percentage points in 2013, sending the economy into a recession (i.e., negative growth). At the same time, it predicts unemployment would rise by almost a full percentage point, with a loss of about two million jobs.
A Wall St. Journal article from May 16, 2012 estimates the following impact in dollar terms: “In all, according to an analysis by J.P. Morgan economist Michael Feroli, $280 billion would be pulled out of the economy by the sunsetting of the Bush tax cuts; $125 billion from the expiration of the Obama payroll-tax holiday; $40 billion from the expiration of emergency unemployment benefits; and $98 billion from Budget Control Act spending cuts. In all, the tax increases and spending cuts make up about 3.5% of GDP, with the Bush tax cuts making up about half of that, according to the J.P. Morgan report.” Amid an already-fragile recovery and elevated unemployment, the economy is not in a position to avoid this type of shock.
The Term “Cliff” is Misleading
It’s important to keep in mind that while the term “cliff” indicates an immediate disaster at the beginning of 2013, this isn’t a binary (two-outcome) event that will end in either a full solution or a total failure on December 31. There are two important reasons why this is the case:
1) If all of the laws went into effect as scheduled and stayed in effect, the result would undoubtedly be a return to recession. However, Congress continues to work toward a deal that will alleviate the effects in some form.
2) Even if the deal does not occur before December 31, as appears likely, Congress can – and almost certainly will – act to change the scheduled laws retroactively to January 1 after the deadline.
At the same time, even a “solution” isn’t necessarily positive, since a compromise will likely involve higher taxes or reduced spending in some form – both of which would help reduce the debt, but would be negative for economic growth.
With this as background, it’s important to keep in mind that the concept of “going over the cliff” is largely a media creation, since even a failure to reach a deal by December 31 doesn’t mean that a recession and financial market crash would necessarily occur.
Republicans and the Art of Racism… President Obama is Dealing With an Aggressive Covert and Fascist Operation in Congress, in The Media and On The Streets.
Rick Santorum has managed to go longer than any other GOP candidate without any serious media scrutiny, mostly because until a few weeks ago, nobody thought that he was a serious contender. But now that he’s the latest front-runner in the GOP race, stories are beginning to surface about his backwards, hateful beliefs. This is a man who wants to take away all of the social gains made by women over the last 100 years. And that’s just the tip of the iceberg.
Well, No Surprise here. Alice Stewart, a spokesperson for Rick Santorum‘s presidential campaign, let the cat out of the bag by accusing President Obama of having “Radical Islamic Policies” in regard to Energy. It just shows once again where Santorum and his supporters are really at….firmly in The Lunatic Fringe!
According to Article 2 – Section 4 of the United States Constitution, “The President, Vice President and all civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors.” Did you understand that? A President can be impeached if he is convicted of treason – bribery – or other high crimes and misdemeanors. Any other attempt to remove the President from office absent of these crimes would not be an impeachment…instead it would be a coup d’etat. Enter multi-millionaire Republican lobbyist Grover Norquist stage right – the guy famous for corraling nearly every single Republican in Congress together to sign his pledge against raising taxes.
At the end of last week in an interview with the right-wing National Journal – Grover Norquist called for the impeachment of President Obama. Not for treason – or bribery – or high crimes and misdemeanors – not for any real impeachable offense – but only because the President might raise taxes on millionaires and billionaires back to where they were during the Clinton administration – to 39%. As Norquist said, “Obama can sit there and let all the tax [cuts] lapse, and then the Republicans will have enough votes in the Senate in 2014 to impeach.” Again – Grover Norquist is calling for the impeachment of the President of the United States jsut for making millionaires and billionaires pay their fair share in taxes – making millionaires and billionaires pay just 39% in taxes instead of 35% in taxes.
Florida may have the largest Tea Party population in the country. But in the group’s failure to rally around a single Republican candidate other than Mitt Romney, their vote may not matter.
How have Super PACs changed the face of campaigns? Are there too many Super PACs? How have they changed the tone of the debate? Do the ads they produce really help Americans figure out who is a better candidate? And can voters see who’s spending these unlimited amounts of money on campaigns?
A new Pew Research poll shows that Americans mostly agree with Democrats on a majority of political issues, and meanwhile President Obama’s approval rating is climbing, while Republican approval is dropping.
Republicans and the Art of Racism… President 
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According to Article 2 – Section 4 of the 
