Fiscal cliff: Why it’s so hard to step back

WASHINGTON — The “fiscal cliff” crisis bundles together some of Washington’s toughest decisions — the ones lawmakers have dodged for years — and says settle them all right now. Or else. Yet bedrock differences between Democrats and Republicans stand in the way.

No wonder it’s hard to shake hands on a deal by New Year’s.

Failure is a lousy option, nonetheless. It would jeopardize the U.S. economy and reverberate around the world. Here’s a look at the hazards of the fiscal cliff and why it’s so tricky for Congress and President Barack Obama to find a safe way down:

———

UNLUCKY 2013

Partly by fate, partly by design, some scary fiscal forces come together in January unless Congress acts to stop them. They include:

— Some $536 billion in tax increases in 2013, touching nearly all Americans. George W. Bush-era income tax cuts are set to expire. So is a temporary Social Security tax cut, and several 2009 tax breaks designed to stimulate the economy by aiding low- and middle-income families. The alternative minimum tax would expand to catch more taxpayers. Taxes on investments would rise, too. More deaths would be covered by the estate tax. Some corporate tax breaks would end.

— About $110 billion in indiscriminate cuts in federal spending next year. By law, the cuts must be divided evenly between the military and non-defense spending, including Medicare, although some programs for the poor would be exempted. That means cuts of almost 8 to 10 percent across all departments, from agriculture to law enforcement to veterans affairs. Plus, federal spending on emergency assistance for the long-term jobless would run out.

All that happening at one time is what’s called going over the “fiscal cliff.”

———

HOW BAD WOULD IT BE?

Taxes would jump about $2,000 for a middle income family, according to a study by the non-partisan Tax Policy Center. Because consumers would get less of their paychecks to spend, businesses and jobs would suffer.

At the same time, Americans would see notable cuts in some government services; federal workers would be laid off, and companies would lose government business.

The double whammy would push the nation back into recession and cost up to 3.4 million jobs, the Congressional Budget Office predicts.

If the U.S. goes over the cliff, Federal Reserve Chairman Ben Bernanke said Wednesday, “The consequences of that would be felt by everybody.”

It wouldn’t happen all at once on Jan. 1. The troubles would deepen over the course of the year.

If the year-end deadline passes, the new Congress might still reach a compromise in the early weeks of 2013 to end the crisis and reverse some of the tax increases and spending cuts.

But Bernanke says the economy is already feeling drag from uncertainty about what lawmakers will do, and that they need to act quickly.

———

CAN’T THEY JUST SAY NO?

Congress and Obama could call the whole thing off, by extending the tax cuts and overturning the automatic spending reductions.

But that would leave the United States heading toward an even bigger precipice: a national debt crisis.

Obama and congressional leaders — especially the Republicans — say it’s time to get serious about fixing budget deficits that have been hitting more than $1 trillion per year. If nothing is done, the U.S. eventually will be overwhelmed by its debt.

Indeed, the automatic spending cuts set for January were created as a last-ditch effort to force Congress to deal with the deficit problem.

Even if lawmakers agreed to whistle past the problem this time, another showdown would loom early in the year.

The government is again approaching its borrowing limit, and needs a vote of Congress to raise it. House Speaker John Boehner says Republicans won’t go along with that unless the increase is matched by spending cuts. Failing to raise the debt ceiling could lead to a first-ever U.S. default that would roil the stock and bond markets.

So Democrats and Republicans really need to make a deal.

———

DO THEY AGREE ON ANYTHING?

Neither side wants middle class tax rates to go up. And neither wants the chaotic, across-the-board budget cuts that come with the “fiscal cliff.”

They also agree something must be done eventually to whittle the nation’s debt, and that will mean budget restraints in addition to slowing the growth of entitlement programs such as Medicare.

———

SO WHAT’S THE HOLDUP?

They’re at loggerheads over some big questions.

Obama says any deal must include higher taxes for the wealthiest Americans. Most House Republicans oppose raising anyone’s tax rates. Some Republicans say they’re willing to consider limiting some tax deductions or credits, however.

Republicans insist on deeper budget-cutting than Democrats. And they want to bring the nation’s long-term debt under control by significantly curtailing the growth of Medicare, Medicaid and Social Security — changes that many Democrats oppose.

Meanwhile, Obama wants $200 billion in new economic “stimulus” spending to help speed up a sluggish recovery. Republicans say the nation can’t afford it.

———

IT’S NOT JUST WASHINGTON

Seems like they could just make nice, split their differences and go home for the holidays, right?

But there’s a reason neither side wants to give ground. They represent a divided and inconsistent America. True, Obama just won re-election. But voters also chose a Republican majority in the House.

In a nation of red states and blue states, Republican and Democrats alike believe they are doing what their voters back home want.

Neither side has a clear advantage in public opinion. In an AP-GfK poll, 43 percent said they trust the Democrats more to manage the federal budget deficit and 40 percent preferred the Republicans. There’s a similar split on taxes.

About half of Americans support higher taxes for the wealthy, the poll says, and about 10 percent want tax increases all around. Still, almost half say cutting government services, not raising taxes, should be the main focus of lawmakers as they try to balance the budget.

When asked about specific budget cuts being discussed in Washington, few Americans express support for them.

Raising taxes and cutting government services is never easy.

———

THE BRIGHT SIDE

There is a silver lining. Honest. The “fiscal cliff” furor makes this the best chance in a long time to really tackle the $16 trillion national debt.

Obama and Congress have tried and failed over and again to seriously attack budget deficits hitting about $1 trillion per year. This time, the stakes are so high that Washington may finally make some painful choices to head off a long-term crisis.

If the dealmakers can ease in those changes without jeopardizing the shaky economic recovery, Bernanke says the nation’s prospects will look brighter in the new year.

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Comments

Bob Berry's picture

...spite your face

So many hate the successful.

Most 'rich' people are first-generation wealthy. In other words, they earned it. They also own the companies that provide jobs for the rest. Taxing business owners more means less money spent on their companies that provide the jobs. This equals unemployment, lower salaries, and a worse economy. Sound simple? It is! Look, what do wealthy people do with their money? Fill their pool with paper bills and swim in it? Of course not, they buy stocks and pour it into their businesses. They re-invest it in hopes it'll grow. If you think otherwise, you've watched too much TV. And no, I'm not wealthy. I'm a man who took the plunge and bought a small business, now working very hard to make it succeed.

Now that I've vented, let's break it down:

Every responsible homeowner that actually (gasp) budgets their finances knows this very simple and real truth: you balance your budget by spending less or making more. This issue is a battle of which one we should do more of. Spend less or make more?

Democrats typically say make (tax) more. Republicans typically say to spend less (though I haven't seen that as much as I'd like in many years).

Both have an effect on the economy. But frugality suggests spending less is better than taxing more. I like that spending less in lieu of taxing more means messing with the private economy less (less taxes = more money to be spent on business growth). And less government interference with private business is good.

Make higher taxes by allowing private industry to make more wealth for everyone, keeping in mind that the government can't make more wealth. Even if taxes were kept the same, a static percent of more is still more.

The statistics presented in the article suggests most Americans agree with me in principle, but cannot (or don't have the guts enough) to decide where to cut. I see cut potential in the welfare system. Don't cry at me... I've seen the cheating going on first hand. Helping people = good. Supporting people = bad. I also see cut potential in homeland security. Dissuade terrorists by making it extremely painful for them to attack, not by trying to stop them... I doubt that can be done. Cutting the military sounds good by the numbers, but I like being the big dog on this sphere. We should not lose that. Teddy said it best: walk softly and carry a big stick.

Getting off my soap box and back to earning money. I have a dozen families to feed.

Catherine Pressey's picture

Don't cry at me, Bob Berry

You say welfare cheats, I say yes welfare dependant if you even care enough to really look at those around you, you see that lots of what you just said, is a farce First of all I am 63 years old and my dad being a Union Republican worked very hard, and anyone that knew him would tell you that he was both a kind feller and an honorable man. That being said, dad told me that if you see a man with money in these day’s that was not born into it. Then he, himself did many things that were not on the up and up. Hide the cash that a client give them. Not saying your not an hardworking honorable man. But you give me a choice to help my neighbor here on our soil rather than send all the foreign aide out. To those that harbor, those that want to kill us. As for your idea that the Rich are honorable I guess you should see Wal-Mart doc. On U-tube. The joke here is, and I am not saying you. I am saying that those that have division between the income of the past and the incomes they make now. Otherwise the Rich make huge money way more than they did years past. All and I mean all on the backs of the lowest workers. Those in my opinion have a right to earn a livable wage. Now maybe you think that $7.00 per hour is a livable wage, those are the people that have to get food stamps and subsidized housing. And when the so called trickle down money from the top did not trickle down. So no offense but I guess you just do not care about your fellow man like my dad did, and we were far from well off, and I lost him when I was 17 and still in school. He never got to collect his Social Security. My dad at times would buy some groceries for a family we knew that the man was a carpenter and at times, when he was between jobs, even in the early sixties, with seven children he just got by and my dad would take a few bags of food over. Never did my dad make him feel that he was lazy or did not want to work, because that was not the case. Please do not think that those that are at the bottom are lazy give them a job that has a livable wage. Like our Unions fought for, a piece of the pie, that the top dog the bosses/owners could not take to the bank, heck read your college history books on the history of organized labor, they pulled dead men out of the ships lots of times on a daily basis. Working condition here today in those companies that are here are now going back to before the Unions. Now that you, so called bosses/owners could careless to offer good benefits, like the Wal-Mart employees get in Germany where all labor is organized. They get 36 days of vacation per year, at those Wal-Marts and those here the workers that they call full time can not even get full time, hours. Lots of companies do not share the wealth with the worker, that in spite of the fact that many are hurting their bodies arms limbs on the jobs that make those at the top Rich. Keep dreaming you dream Mr. Berry but you’re the one that can not see the forest for the trees, and mark my word this is all going to blow up on the Rich, and we at the bottom will not continue to take this, insults about being on the take, Wal-Mart got subsidies like lots of our companies. That is Corporate welfare and if we really had a council to investigate how much those that need not that help get by way of subsidies etc. Lots more than the family getting food stamps because he does not pay them enough. Period. Good day to you, and God bless. p.s. I could go on but it would fall off the cliff, with those Owners/bosses, like a big waist of time. Much like your attack on our side of the story. You paint a good picture, tell me where the trickle down is. LOL what a joke.

Steve  Dosh's picture

Fiscal cliff: Why it’s so hard to step back

l s j ® readers 12.13.12 17:30 HST ?
The President vs. Mr. Boner [ sic. ]
Now who do - y o u - think will win ?
[ ] US
[ ] him
Just keepin' it real , Republicans •  /s Steve
Melé Kalikimaka everyone ..

 's picture

There is nothing to compromise about

The Republican plan of economic austerity doesn't now and never has worked. It makes no economic sense and it has produced irresponsibilbe spending and borrowing for 30 years. Their long stated goal has been and remains repealing Social Security and Medicare by any means necessary including vouchers, private accounts, reducing tax rates, and a number of other schemes. Trading tax increases for reduction of these earned benefits is not a compromise because it meets the Republicans goals only.
Democrats should stand pat on a return to Clinton tax rates for the top 2%, taxing capital gains simpl;y as taxable income at the normal rates, and increases and radical reform of business taxes so that we solve the tax crisis that has seen taxes fall to 1/4 of what they were during the Eisenhower administration.
The debt is not to be ignored. After 30 years of irresponsible borrowing by the Republicans we can't rely on economic growth alone to grow our way out of debt. So some cuts small enough not to prevent growth which would compound the problem must be made. Cut the military by at a minimum $100 billion per year. Start with the F-35 fighter program ($1.5 trillion lifetime cost estimate now). Cut health care costs, negiotiate prescription drug costs everywhere, expand medical schools, introduce competition where it makes sense, and eliminate conflicts of interest. Go to a single-payer insurance system. Probably hundreds of other steps would get us a system that would reduce the federal debt.Then pay off the debt over 20 or 30 years.
And the must valuable step to reduce the Federal debt; never ever vote for a Republican who does not support economic growth, fiscal responsibility, and science.

CLAIRE GAMACHE's picture

The Fiscal Cliff

That is a misnomer. There is no reason the new legislature in January can't come up with a deal and make it retro-active. The catch there is that the markets will react badly to all the new taxes and cuts in government spending. It could spiral the markets out of control and put us where we were in 2008. The other catch is that public opinion as of this point would blame the Congressional Republicans. Reasonable men would settle on what they agree on. No tax increases on the middle class which would imperil the economic recovery and no changes in Social Security which does not affect the deficit at all and no changes in Medicare which is part of the Obamacare law and a better review of cuts to the defense department at least to the degree that they are funded according to what they have asked for instead of the increase called for by the Republicans. The rest should be dealt with at the time of the debate in the debt ceiling.

Catherine Pressey's picture

I VOTE FOR GOING OFF THE CLIFF,

If going off the cliff is what it will take to make the Rich, pay more, from what I have read on line there was a time when the very Rich paid over 60% tax rate on their income. And I do not believe that they ever went without food or their basic needs, then somewhere they got this reduced down into the 30's, taking away those funds from our Government books. Though I have not done deep reasearch about what each step in this course. Now this country being spoke of as the greatest one, Yep! Now chooses to cut from the poor and old memebers of our society, that is criminal and our Congress should be ashamed that they can not see that the Rich can and should pay lots more not just a few percentages more, mostly do to the fact that lots of their money is made on the backs of the poor workers that can not afford a apartment or home on the wages that the Corporations pay to produce any or all products. When asked to pay more those same CEO's take those jobs to China and other off shore countries rather than pay a livable wage, to those that produce their wealth. This all works counter productive making what they are now calling entitlements, and to add insult to injury they are calling medicare and Social security entitlements too! Then on the flip side they give huge amount of money to foreign countries in foreign aide, what is that all about. We can not take care of our neighbors here at home provide for them a warm safe place to live and food on the table. And call them lazy, all the while taking those jobs off shore. Give the warring nations money and arms. Cuts can be made, maybe a bunch of people like me who have always lived very frugully on a whim and prayer. And made due, should be asked to do a budget. Now it would seem to me that if our Government needs to balance the budget and they do. Cut all foreign hand outs aide to other countries first. Charity begins at home first and formost. Bring our troops home, put the in CCC camps, also the out of work construction workers, rebuild our country from the inside. If we build America back up provide for our people all of them, and stop insulting them. My dad was a Republican and a Union Electrican, he was proud to go to work, and so are lots of Americans. Stop making them feel like bumbs, that do not want to work, I have seen it in my kids, one with a college degree that can not find work, the other that worked for years in a field that makes you use you own vehicle to transport clients, that may or may not pee spit, damage the inside of ones vehicle. And the pay years ago was not so bad with the agencies providing that vehicle. Now they make that the workers responsibility, you must own a vehicle carry larger insurance. Thus making this job, now not a livable wage job, because the middle men make and manage the funds that come, yes from our Government. And manage it poorly thrusting some cost of the poor worker to provide transportation for those they care for. NOT RIGHT, not right at all if you want me to transport a person in my vehicle that could have, medical issues that can be passed onto my family. And also do not tell me what these person may have, due to some laws. I say lets go off that cliff roll back the taxes on the Rich that created this mess so they can own many vacation homes all over the darn world and live like kings on the backs of the workers, and they now buy the Congressmen with their campain contributions. And demands, now we are loosing our right to bargin better pay. THIS IS ALL GOING TO COME TO A HEAD yes! Spending is out of control greed is out of control and it is being protected by the very people that we sent to Washington to care for the voters, and the least able to care for themselves. This story just is so true, this story pisses me off, though true. It is true that our Government could care less both in Washington and in our Capital of the state of Maine.

Steve  Dosh's picture

Catherine , 12.13.12 17:45

Catherine , 12.13.12 17:45 HST ?
We say " Jump ! " too . Be daring . Be bold •
Fully > sixty percent of the US Federal Budget go to the US Dept of Defense
Another great percentage goes to Homeland Security , TSA , Federal B I , the C I A and many other federal protective services such as Treasury (alcohol , tobacco & firearms ) , the Secret Service . N S A ( No Such Agency ) the Border Patrol ( look out Canadians :) , http://www.noradsanta.org/ [ i happen to - l i k e - that one ] and who knows what ever else . ...
Jeepers creepers and holy Macanoly
More security hasn't made me feel any safer , Has it you ?
Imagine if all that $$ was not spent on guns and weapons ?
Who the heck are we fighting n e way ?
Just today the TX rangers were caught with - t h e i r - pants down dealing drugs , it seems . " We have met the enemy and he is us."
/s, Dr. Steve Dosh R P C V Micro' 78 http://www.peacecorps.gov and former Federal anti-drug co-ordinator stationed in Guatemala . Only shot at once . Lived to tell about it *<;-Q~ Melé Kalikimaka • 

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