Election over, Next Crisis...

[Glassfan]

Time to turn our attention to the "Fiscal Cliff" - a term coined by politicians and Media to describe the massive automatic budget-cutting scheduled to take place January 1st.

Large spending cuts and tax hikes to reduce the deficit could push the US into another Recession. Will the President and the House be able to come to a compromise? Plenty of blame to go around.

To simplify, the Democrats want to increase taxes, the Republicans want to reduce spending.

The three scenarios for resolving the issue include extending current policy for six months, falling off the fiscal cliff, and a grand bargain on deficit reduction.

My own guess is that deadlock will result in the first scenario - extending current policy - will be the last minute "compromise". Put it off until next year. The politicians are talking reason now, but as the congressional sessions approach closing, we'll see a lot of finger pointing and hardening of positions.

Americans reelected the President, but he did not have long "coat-tails", and the House remains under Republican control, effectively splitting government.

 

[Antilogic]

If Obama had a spine, he would push the Democrats in the House and Senate to not negotiate on the expiration of the old cuts but rather introduce a new bill that would lower taxes only on the lower classes. No compromise on the top rates would be necessary because they are set to expire anyway without any further legislative action.

 

[Cutlass]

I think we're going over the cliff. And I'll bet further that come 2014 Congress will have an ordinary number of seats change hands.

 

[warpus]

To simplify, the Democrats want to increase taxes, the Republicans want to reduce spending.

Democrats want to cut spending as well, don't they?

They cut funding to NASA last year by a bit, I think. I'm Canadian, but it seems to me that most Americans generally agree that cuts to programs are needed. The big issues seem to instead mostly revolve around which exact programs are going to be cut, and by how much.

 

[innonimatu]

Amazing how media pundits can simplify the running of a country to just three scenarios!

 

[GhostWriter16]

From what I've heard, Democrats want lower taxes only on the lower classes, Republicans want them across the board, and what we're getting is tax hikes on everyone.

Is that what's happening?

 

[Antilogic]

From what I've heard, Democrats want lower taxes only on the lower classes, Republicans want them across the board, and what we're getting is tax hikes on everyone.

Is that what's happening?

Strictly speaking, the tax hikes were put in place back in 2002. To make the impact of the tax cuts look less severe, the Republicans wrote into the bill that the tax cuts were temporary and would automatically expire in 2010. Then they were extended in 2010 for two years until now. The argument as to who gets the cuts comes down to which of the cuts will be extended and which will not be.

Nobody is actually proposing a law right now that would increase taxes. Well, nobody in Congress that I know of or could actually be passed, anyway.

 

[AlpsStranger]

If Obama is smart he'll manage to make the Republicans look unreasonable.

Now is the time to grow that rarest of things ( Democratic testes ) and ( metaphorically ) slash the throat.

 

[GhostWriter16]

Strictly speaking, the tax hikes were put in place back in 2002. To make the impact of the tax cuts look less severe, the Republicans wrote into the bill that the tax cuts were temporary and would automatically expire in 2010. Then they were extended in 2010 for two years until now. The argument as to who gets the cuts comes down to which of the cuts will be extended and which will not be.

Nobody is actually proposing a law right now that would increase taxes. Well, nobody in Congress that I know of or could actually be passed, anyway.

OK, I get that. Its not technically a hike, its just an expiration of a cut.

However, from what I heard, Democrats do in fact want to extend the cut... just not for the higher incomes. The GOP, on the other hand, wants to extend these cuts across the board.

So why are they not being extended for anyone? Surely the two parties agree already on extending the tax cuts for the lower incomes...

 

[ZeletDude]

OK, I get that. Its not technically a hike, its just an expiration of a cut.

However, from what I heard, Democrats do in fact want to extend the cut... just not for the higher incomes. The GOP, on the other hand, wants to extend these cuts across the board.

So why are they not being extended for anyone? Surely the two parties agree already on extending the tax cuts for the lower incomes...

You would think so right?

Well I'm pretty sure the Republicans refuse to extend the cuts unless it is extended for the rich as well.

 

[timtofly]

Obama said that 98% of americans and 97% of small business make under $250,000 and that is the tax cut he wants to extend. So only 2% of americans and 3% of small businesses who make over $250,000 are considered the rich who need to not have the tax cuts extended.

 

[anandus]

Hehehe, the rich should be happy they're not living in France

Although it'd help a bit:

If the U.S. were to tax 75 percent of millionaires’ entire incomes, not just their income over $1 million, that would yield around $532 billion in tax revenue, he said.

 

[Antilogic]

OK, I get that. Its not technically a hike, its just an expiration of a cut.

However, from what I heard, Democrats do in fact want to extend the cut... just not for the higher incomes. The GOP, on the other hand, wants to extend these cuts across the board.

So why are they not being extended for anyone? Surely the two parties agree already on extending the tax cuts for the lower incomes...

Well, that was supposed to be a reasonable agreement that could be achieved back in 2010. But the Republicans refused to budge on any other legislation until all the tax cuts, even for high incomes, was extended (and they still have the numbers to filibuster in the Senate). We'll see what happens this time.

 

[anandus]

I don't get it, why they don't just go through with the Fiscal Cliff?

It looks like a win-win scenario:
* The deficit gets halved, almost, by 487bn. Fiscal responsibility. Yay for the Republicans.
* The tax cuts do not get extended. Yay for Democrats.

It'll slightly hurt the economy (minus 0.5% economic growth and 1.1% extra unemployment), but it'll do wonders for the public debt (to 58% of GDP in 2022) and the deficit (to 0.5% of GDP in 2017), which means more money for the government to invest in the long run.

Or would it be too big a shock?

 

[Winner]

Democrats want to cut spending as well, don't they?

They cut funding to NASA last year by a bit, I think. I'm Canadian, but it seems to me that most Americans generally agree that cuts to programs are needed. The big issues seem to instead mostly revolve around which exact programs are going to be cut, and by how much.

I need to reduce my household spending. I'll start by investing two cents a year less in stocks. Who cares I am gambling away 10,000 dollars in Las Vegas each year...



Hint: if you want to cut spending, start with items which account for most of your deficit: social security, health care, and defence.

 

[Cutlass]

I don't get it, why they don't just go through with the Fiscal Cliff?

It looks like a win-win scenario:
* The deficit gets halved, almost, by 487bn. Fiscal responsibility. Yay for the Republicans.
* The tax cuts do not get extended. Yay for Democrats.

It'll slightly hurt the economy (minus 0.5% economic growth and 1.1% extra unemployment), but it'll do wonders for the public debt (to 58% of GDP in 2022) and the deficit (to 0.5% of GDP in 2017), which means more money for the government to invest in the long run.

Or would it be too big a shock?

It would be too much of a shock. Confidence matters. And many people would lose that. The US could expect to pay higher interest in the future a new recession would last who knows how long. Not to mention that most of what the Republicans would cut would cause a weakened American economy in the long run and much of the protections of the American people would be removed. This would be a huge gift to corporate cronyism at the expense of lower living standards of all non-rich Americans.

 

[Leoreth]

I also don't think that across the board cuts would be in the interests of any party.

 

[downtown]

Yeah, going over the cliff would be pretty devastating. It is too much of a discretionary spending cut at once, which would send confidence shocks throughout the economy and jeopardize an already weak recovery. The Euro Debt crisis almost killed the recovery, this would certainly finish the job.

Judging from what Boehner and Obama have already said, I think out and out tax hikes are out of the question. I think we'll see the Bush tax cuts expire, and a corporate tax cut in exchange for some limitations of deductions and other internal tweaks that would raise revenue without *technically* raising the rates...a political tweak, if you will.

 

[AlpsStranger]

We'll do whatever works and call it conservatism/liberalism. At least, that's what it usually looks like to me.

 

[Ziggy Stardust]

2 words: executive order