The Imminent Fiscal Cliff Approaches
Posted on Wednesday, December 5, 2012 at 8:47 PM
This “cliff” is supposedly waiting for America at the end of the year when automatic taxes go into effect alongside automatic spending cuts that will affect every American, rich or poor, in this country.
One of the newest terms resulting from the past election (other than “obamacare”) is the “fiscal cliff.” This “cliff” is supposedly waiting for America at the end of the year when automatic taxes go into effect alongside automatic spending cuts that will affect every American, rich or poor, in this country.
Now it is up to Congress to find a compromise during a traditional “lame duck” period (the period between the election and when the newly elected officials are sworn in).
To give perspective, let me introduce Ralph the republican and Dennis the democrat. Ralph hates taxes, and is absolutely appalled at his fellow republicans who have recently jumped off the Grover Norquist anti-tax pledge bandwagon that the GOP have been riding on since 1986.
Dennis, on the other hand, hates the fact some social programs are in danger. He wants his democratic friends on Capitol Hill that budge a penny on federal relief programs (even silly ones like the cell phone program many Ohioans on welfare were taking advantage of earlier in the year).
The fiscal cliff (which is more like a fiscal hill anyways) is avoidable. The lawmakers must figure out which programs to cut and who should be taxed starting in 2013. The reason it is being referred to as a “cliff” is because there are economists who say this combination will plunge the economy back into a recession. This is a very complicated situation which makes such a rash and direct statement difficult to believe without at least some positive remarks. Both of these activities will add money to our tremendous deficit, so it is not all bad. The trick is refining the details.
Obama ran on the platform to tax people who make over $250,000 a year. That is one part of the conversation Dennis and the democrats have leverage on. They must give on the spending, though. The republicans have given slightly on taxes as of this Monday, saying they would in fact embrace $800 billion in new taxes for the next decade. This is huge mostly because it breaks the Norquist anti-tax pledge.
(Grover Norquist is the president of Americans for Tax Reforms, which is a Republican lobbyist group that passes around an anti-tax pledge every election and was signed by 95 percent of Republicans).
Obama was hoping for somewhere in the $1 trillion or more in new taxes, but at least it is a step in the right direction. Ralph has finally given on his anti-tax policy that Republicans were convinced is the answer. It is now up to Dennis and the Democrats to provide some compromise when it comes to cutting costs. Based on how blatantly the government appears to run in some areas, hopefully this will not be a difficult task. There has even been a bipartisan plan on the table for the past two years.
In 2010, Obama put together a bipartisan panel that included Clinton’s former chief of staff, Erskine Bowles, and former Republican senator Alan Simpson, who retired in 1996 but still enjoys broad respect in the GOP. These two were joined by six members from the house and six from the senate of even party distribution. There were also two business executives, a labor union president and a former White House budget director Alice Rivlin present on the panel.
This panel was so diverse it had a difficult time nailing down a proposal, but finally came up with a final report that called for around $3 in spending cuts for every $1 raised in new tax revenue. It also called for cuts to the military (something Ralph is upset about) and raising the retirement age gradually to 69 by 2075 (something Dennis doesn’t like, that means he has to work longer until retirement). The plan did have a raise of taxes in the $1 trillion neighborhood but also included revisions which lowered the tax rate on the individual and corporate level. There was also a revision to cut 200,000 federal employees and freeze salaries.
Ralph seemed to have received a few more benefits than Dennis in this plan, but it was bipartisan; definitely laying the ground work for the plan that congress needs to figure out within a timely manor. Ralph and Dennis are getting closer to an equal compromise, and that is important.
Every citizen in this country will benefit if this deal happens sooner rather than later. The sooner it happens, the more businessmen know about the future political landscape and can make investments based upon that. Get to work Ralph and Dennis!
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