The big story in Washington, and indeed across the nation, is the story about how the US will go over "The Fiscal Cliff". This cliffmania has got all "experts" in the media and policy arena in a washintonian tizzy. And their hysteria is catching on across the land. But the question people should be asking is, so what?
Ok, here is some basic fact, just in case you've been in a cave for the past two years. In 2001, George Bush and his Republican congress crafted a sneaky tax break at a cost that essentially bankrupted the nation just a decade later. In 2010, Obama, after an election shellacking caved in to Republican blackmail, and extended that same bankrupting tax break for another 2 years. Ok, now it's time for those tax breaks to go away, and the blackmailers are back at it. Also, in 2011, Republicans blackmailed Obama and the nation into a senseless budget sequestration, as a price for raising the debt limit - an obligation to pay what the nation owed. As a result of that blackmail, the nation's credit was downgraded for the first time ever. So, the stage was set for a lame duck show down. A showdown Republicans counted on winning, if they had been able to achieve Mitch Mconnel's dream of taking control of the Senate and making Barack Obama a one term President. They lost.
But what does the fiscal cliff actually mean? If they nothing is done between now and December 31st of this year, the Bush era tax cut will finally be over. The trillion dollar sequester will take effect, and the pay roll tax cut, the unemployment extension and a slew of other tax cuts, including the AMT fix and the Doc fix will also expire. What is the worst that can happen?
In the short run, the Federal tax receipt could swell to as much as 20% of GDP (albeit a slightly shrinking GDP in the first 6 months of 2013) and Federal spending could decline to nearly 21% of GDP in 2013, leading to the first balanced budget in a decade. But the pain, particularly to the poor and lower end of the middle class will be high, and unemployment may inch up slightly in the first half of the year. Also, the stock market is likely to go into a short-term shock (not much of a shock after almost a year of warning signs from Republicans).
But President Obama, and the Democrats in congress are likely to want to reverse any pain on the middle-class, and Republicans are likely to have greater incentives to deal, at a price of a some favors to their wealthy patrons. So perhaps, there will be a real deal on the tax code, decrease in taxes for the middle class (back to this year's rate). Of course the deal will lead to more fiscal imbalance, at least in the short to medium term, and more revenue, including revenue from the new found energy sufficiency (due to the large shale oil and natural gas deposits) could help alleviate some of the long term concern.
So why is everyone acting scared in Washington? Well, that is what Washington does, and there are just way too many pundits who's livelihood depend on all the drama of the fiscal cliff. Let the Bush tax cuts expire.
Ok, here is some basic fact, just in case you've been in a cave for the past two years. In 2001, George Bush and his Republican congress crafted a sneaky tax break at a cost that essentially bankrupted the nation just a decade later. In 2010, Obama, after an election shellacking caved in to Republican blackmail, and extended that same bankrupting tax break for another 2 years. Ok, now it's time for those tax breaks to go away, and the blackmailers are back at it. Also, in 2011, Republicans blackmailed Obama and the nation into a senseless budget sequestration, as a price for raising the debt limit - an obligation to pay what the nation owed. As a result of that blackmail, the nation's credit was downgraded for the first time ever. So, the stage was set for a lame duck show down. A showdown Republicans counted on winning, if they had been able to achieve Mitch Mconnel's dream of taking control of the Senate and making Barack Obama a one term President. They lost.
But what does the fiscal cliff actually mean? If they nothing is done between now and December 31st of this year, the Bush era tax cut will finally be over. The trillion dollar sequester will take effect, and the pay roll tax cut, the unemployment extension and a slew of other tax cuts, including the AMT fix and the Doc fix will also expire. What is the worst that can happen?
In the short run, the Federal tax receipt could swell to as much as 20% of GDP (albeit a slightly shrinking GDP in the first 6 months of 2013) and Federal spending could decline to nearly 21% of GDP in 2013, leading to the first balanced budget in a decade. But the pain, particularly to the poor and lower end of the middle class will be high, and unemployment may inch up slightly in the first half of the year. Also, the stock market is likely to go into a short-term shock (not much of a shock after almost a year of warning signs from Republicans).
But President Obama, and the Democrats in congress are likely to want to reverse any pain on the middle-class, and Republicans are likely to have greater incentives to deal, at a price of a some favors to their wealthy patrons. So perhaps, there will be a real deal on the tax code, decrease in taxes for the middle class (back to this year's rate). Of course the deal will lead to more fiscal imbalance, at least in the short to medium term, and more revenue, including revenue from the new found energy sufficiency (due to the large shale oil and natural gas deposits) could help alleviate some of the long term concern.
So why is everyone acting scared in Washington? Well, that is what Washington does, and there are just way too many pundits who's livelihood depend on all the drama of the fiscal cliff. Let the Bush tax cuts expire.
Interesting viewpoint. I wonder the impact of doing nothing on consumer confidence though. In this economy, perception seems to have greater weight than reality. I'd like to see something done to avoid going backwards to go forward.
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