Fiscal Cliff
Posted by fallenx888x on Tuesday, September 25, 2012
A lot of people, including
Federal Reserve Chairman Ben Bernanke, are worried that we are nearing
the edge of a fiscal cliff. I'm more concerned with the hole we are
already in.The "fiscal cliff" refers to the scheduled expiration of a
slew of tax laws - most notably the "Bush-era" tax cuts, which have
already been extended well into the Obama era, and the "one-year"
reduction in employee FICA taxes, which is now in its second year.
Combined with the automatic spending reductions also set to take effect
Jan. 1, the changes would drain up to $700 billion from the economy. In
testimony before Congress, Bernanke warned that, if all the changes go
into effect, the economy will respond with shock, contraction and
possibly a new recession.Adding to the concern, the Treasury is also now
approaching the debt ceiling that Congress authorized last summer, in
the compromise that also created the automatic spending scheduled to
take effect at the end of 2012. We are likely to bump up against the new
ceiling right around the same time that the end-of-the-year changes
come into effect.I am not particularly worried about the fiscal cliff,
however, because we are unlikely to tumble over the edge.We have been
down this road before. The Bush-era tax cuts were originally due to
expire at the end of 2010. President Obama wanted to let the cuts lapse
for high earners. Republicans refused. At that time, Democrats
controlled not only the White House, but both houses of Congress as
well. They could not get exactly what they wanted, because Senate
Republicans had enough votes to block a partial extension of the tax
cuts; Democrats could only extend the tax cuts for everybody or for
nobody. We ended up with a two-year extension for everybody.With
Republicans in control of the House of Representatives this year, the
choice is exactly the same, and I fully expect to see the same result.If
Obama is re-elected, he will not be in any better bargaining position
next year than he is now. Republicans are still almost certain to
control the House, and they will be near parity with Democrats in the
Senate. Obama has shown that he will continue the status quo rather than
allow taxes to rise for everyone in those circumstances. So we'll be
back to where we were in late 2010.If Mitt Romney wins in November, a
lame-duck Obama might refuse to extend the tax cuts for high-income
Americans this fall. Republicans will, in that case, just wait him out.
Romney will be sworn into office on Jan. 20, and Congress will pass a
quick and retroactive extension of the tax cuts. There are enough Senate
Democrats siding with Republicans on this issue to ensure this result.
At least seven Democratic senators have already said they are willing to
consider a temporary extension.The automatic spending cuts are a new
variable; we were not in this position in 2010. But they won't happen
either, at least in their current form, because neither party wants
them. Republican fiscal conservatives will still demand big cuts in
return for another debt ceiling extension, but the cuts will probably be
somewhat smaller, and differently arrayed, than the ones scheduled to
take effect automatically. The parameters will likely be decided as part
of the next battle over the debt ceiling.So we are not going to tumble
over the fiscal cliff. That certainly does not mean we have a smooth
fiscal path in front of us. We are in a deep national financial hole,
and it gets deeper the longer we ignore the fundamental fact that our
short- and long-term spending plans are unsupportable at any tax load
that the U.S. private sector is able to sustain. We cannot borrow and
spend our way to durable prosperity. We've been trying for at least four
years now - arguably a lot longer - and we have succeeded only in
digging a larger pit.For more info,Please visit Fiscal Cliff From
here, it's possible to see the bottom and get a pretty good idea of
what it will look like. Other countries, notably China, will inevitably
start to doubt our capacity to return their money. First they will raise
our interest rates. If we have not made serious changes to our fiscal
policy at that point, the higher interest rates will simply add to our
budget deficits, forcing us to borrow more and more money, paying ever
higher prices to get it. If we reach the very bottom of the hole,
investors will stop lending to the U.S. Treasury altogether.The way out
of this hole isn't easy. At this point, a merely balanced budget will
not be enough; we need a surplus in order to begin to pay down our debt
before rising interest rates make it unsustainable. We need to get
serious about increasing revenues and reducing spending. The issue goes
far beyond whether or not to maintain the Bush-era tax cuts on high
earners.It is not feasible in the long run for the majority of Americans
to be net recipients of tax dollars. The top 1 percent of earners is
now responsible for about 40 percent of the country's tax load, while
nearly half of Americans pay no federal income taxes at all. Converting
more citizens into taxpayers would help fix the problem, not merely by
raising more money, but also by making more of the electorate - and this
should be everyone who is not truly poor - weigh the costs of
government services and benefits against the burdens imposed on the
private sector that must bear those costs.The good news is that we are
not about to go over the fiscal cliff. The bad news is that this is
because it's hard to fall off a cliff when you are already in a hole.If
you are interested in learning more,check out