Fiscal cliff update, the latest news

NBC News:

NBC News has confirmed that Obama and Vice President Joe Biden will meet with House and Senate leaders on Friday afternoon to try to revive negotiations to avoid tax hikes and spending cuts — together worth $600 billion — that will otherwise begin to take effect on Jan. 1.

Whether or not you agree with President Obama’s fiscal cliff position of offering up cuts to Medicare, it’s hard to argue that the President is not on the more adult side of this discussion.

Obama would be wrong to offer any cuts to the social system, since the deficit and debt is mostly the Republicans’ making (see: wars and tax cuts), but the GOP position is beyond crazy. Then again, crazy is exactly what the GOP base has become.  And that base wags the GOP dog.

During the last budget discussions, it was the Tea Party the forced today’s predicament of imminent budget cuts and tax increases taxes. They’re also so completely nuts that they would all rather raise taxes on 98% of the population, just so they can continue to defend the 2% who have profited the most from the reckless tax cuts that are actually a large part of the problem in the US.

And in any case, Caroline Baum of Bloomberg argues that the fiscal cliff has already come, and that it may not be such a big deal:

Here’s what I’m wondering. The economics profession worships at the altar of rational expectations theory: the idea that our behavior is based on expectations about the future, so the future is now, so to speak. It’s what drives the Federal Reserve’s communication policy. Policy makers believe that pledging to hold the overnight rate at close to zero until a certain date (old testament) or specific unemployment threshold is reached (new testament) will accelerate the economic recovery.

I have lots of issues with expectations theory. But if academics are correct, and the public expects the U.S. to go over the fiscal cliff, why is going over it such a big deal?

The thing is, the immediate impact of falling off the cliff may not be as draconian, as the long-term effects, that will worsen as the cliff-falling continues. The longer we fall, the longer that spending is cut, and the more demand sucked out of the economy.

And consumer confidence is already declining.  Some blame fears of the fiscal cliff for reports of a somewhat lackluster Christmas retail spending – Black Friday numbers were weak too this year. Others argue that spending was stronger than people think.

fiscal cliff panic

Panic via Shutterstock.

Wall Street is already starting to fret over a possible plunge over the fiscal cliff.  But seriously, have you ever seen a bigger bunch of nervous nellies then these guys on Wall Street?  No matter the crisis (or perceived crisis), Wall Street panics before the rest of the country.  For guys with such huge paychecks and bonuses, they sure do come off as a bunch of whiners.

OPM is already preparing for federal government furloughs.  And it’s not at all clear if furloughed employees will be paid for the time they’re forced to stay home.  And while that may sound nice, having a multi-week vacation, it’s really not if you suddenly lose your salary that month and are already living paycheck to paycheck.  And that will be an even greater hit on the economy.

The Republicans have always been there to defend those least in need, and now they’re not even hiding the fact. It’s all about rescuing the richest of the rich who have enjoyed the profits of the bad economic policies that started during the Reagan years.

Is it any wonder that Americans think much better of Obama and Democrats than Boehner and Republicans during this debate? For Republicans, though, it almost doesn’t matter. They’re more interested in sticking to their pledge of “I didn’t raise taxes,” rather than helping 98% of Americans.

Even worse, thanks to gerrymandering, the Republicans have little to worry about for the next ten years. As Nate Silver wrote about this week, there are fewer “swing” districts in play compared to the past, so the prospect of Republicans losing control of the House any time soon is increasingly remote.

An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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27 Responses to “Fiscal cliff update, the latest news”

  1. lynchie says:

    Ain’t that the truth. I am starting to believe that this whole thing was worked out in advance. Lot’s of theater and high drama. Deal made at the last minute. Had to give in to save us from the edge. Breaks for under $1 million, we will work out cuts later but had to give on SS and Medicare. TRUST ME–says Obama, I will make it right later (in the next century). As always we are being played by our elected officials. A cut to the military spending along with closing overseas bases (we need 800 odd?). Time for our brilliant media types to ask some important questions–SS is not part of budget so why cut–why no military cuts–what sacrifice is Congress making in their salary and benefits–why is the cliff important now and not during Bush I, Clinton and Bush Dimwit–how much is this being influenced by the wishes of Wall Street and Banks. Simply go on tv and tell us the truth. No smoke and mirrors. We are all adults and can handle the truth but apparently you clowns would no know what that is.

  2. ronbo says:

    That changes nothing. It only proves that SS is financialy sound for 3 decades! It’s the federal gvt that is the problem.
    You don’t kick your car when it runs out of gas, do you? It’s foolish to blame SS.

  3. Butch1 says:

    Same thing. ;-)

  4. Sweetie says:

    The fiscal cliff began when Reagan was elected. We’re still falling.

  5. Sweetie says:

    No, it’s Obama shows his true colors by cutting “entitlements” and failing to raise taxes on the super rich to reasonable levels time—while progressive bloggers talk about “adult vs. crazy” as if that matters.

  6. Asterix says:

    If nothing happens and we go off the fiscal “cliff”, taxes will go up, but won’t they increase more at the upper-income level than the lower one?

    That may not be such a bad thing after all…

  7. Hue-Man says:

    I hope the first payments to be “sequestered” are payments to Congressmen and Senators followed shortly thereafter by the War Department and Ag-Business subsidies. Time for them to have some “skin in the game” they keep demanding of the 99%.

  8. Naja pallida says:

    As I’ve been saying for a long time now, we haven’t implemented a really Liberal or progressive policy in this country since about the time of LBJ. Since then almost everything has been steadily supply-side and corporate-friendly, and anything that wasn’t, ended up so watered down that it was ineffectual anyway. Yet, somehow, it’s the Liberals who are ruining our economy. Apparently Liberals have gay magic too.

  9. blogmobb says:

    But since the individuals SS payments are based on highest 35 years of income, with a max, if they raise the cap, then it’s only fair they raise the max payout.

  10. nicho says:

    The only problem with SS is that the payroll tax cap is set too low. Raise it or eliminate it altogether and SS will be rolling in dough.

  11. brian says:

    Right, which is why the government should stop the practice of borrowing money from SS to pay for other things. That does not mean that SS in itself should be cut.

  12. blogmobb says:

    SS does not contribute to deficit, but it’s cash-flow negative because Congress used money from SS. Part of SS cash flow on paper is interest from money it lent the govt. But the govt pays the interest with just more IOUs;

  13. brian says:

    I agree part of the problem is spending. However, Social Security does not and has not contributed a single cent to the deficit. It is fully funded by the payroll tax and will be for another 20 years or so. As for Medicare, negotiating drug prices will lower costs enormously, as someone has already pointed out. Yes, there are also other programs that can be cut, like the bloated defense department.

  14. blogmobb says:

    The issue is spending. The current Federal budget would require 100% tax on income from every person making $100,000 a year or more. Medicare and SS need to be cut in half. (And I say that, speaking as a person who will desperately need SS and Medicare when I retire). There just isn’t enough money to cover Federal spending.

    It’s purely an arithmetic problem — not an ideology or social policy problem. The baby boom generation is retiring, and the working generation behind them is too small.

  15. Butch1 says:

    There are no real Democrats left in Congress or the White House. We have an Independent named Bernie Sanders who stands up for our principals and people that ran in third parties. The rest of these fools are corporate whores.

  16. Butch1 says:

    “knees” ;-)

  17. Butch1 says:

    Is it “presidential cave time?”

  18. lynchie says:

    Don’t forget some of Bill;’s triumphs–NAFTA, cutting welfare and then claiming credit for lowering the welfare rolls. He did a great job for his buddies on Wall Street and the Banks and his big claim to fame balancing the budget. A bust except the Dot.Com bubble had huge tax payments for the profits being made not because of his policies. One other question how come he entered the WH a virtual pauper and left a multi, multi millionaire?

  19. lynchie says:

    Not confined to Repugs, the Dems are all on the payroll. Offshore accounts, voting for everything Wall Street and the Banks desire.

  20. HolyMoly says:

    Not only eliminate the cap on SS taxes, but also allow Medicare to negotiate with drug manufacturers for a better price…like other countries do. Then not only do you have more revenue coming in to support these programs, but you also have less being unnecessarily spent on the healthcare end of things, exactly where most of the money is probably being spent.

    They act as if there’s no other choice but to hurt the elderly…raise the retirement age and/or cut benefits/cut COLA. But, you know, you’ll have older people needing to rely on the Affordable Care Act because of a rising retirement age (and at a time of increasing doctor’s visits)…which means they’d be putting a strain on Obamacare. Their solution is bad both for retirement programs AND Obamacare, in my humble opinion.

  21. lynchie says:

    Good thought but that is not likely to happen with everyone in Congress from the President on down owned by the 1%.

  22. Michael in Cambridge says:

    Republicans don’t care about the 99% because they’re not paid by the 99%. Their real, million-dollar-a year Wall Street and Defense industry consulting jobs will start after they leave Congress (with fabulous pensions), so why should they care about what we think? They have the grifter’s contempt for suckers.

  23. ronbo says:

    Let’s pray for another Monica! I’m getting sick of electing Dems and getting Republican Corporatists.

  24. nicho says:

    Raise or eliminate the cap on Social Security payroll taxes. Make the billionaires and corporations pay their fair share. Problem solved.

  25. nicho says:

    Except that the Clintons were ready to cut Social Security and Medicare — until Monica Lewinsky stopped them — on bended knee.

  26. ronbo says:

    Now we have a “Democrat” pushing for cuts to SS and Medicare.

    May Obama fail in his pursuit of Republican policy. Clinton-era tax policy seem much better than anything offered by these corporate-whores.

  27. brian says:

    We actually do need higher taxes on everybody, but it is the big double whammy of the payroll tax and Bush tax cuts that are expiring at the same time that has me a little worried. If they gradually raised taxes then it is not a problem and the millionaires can pay more upfront now since most of their income will exceed the payroll tax cap of $110,000 or whatever it is next year. The working class does not have such a luxury and it may be hard for many families to swallow all at once. We can talk about refining the tax code later. Somehow Clinton made the math work, and both Reagan and Bush knew they needed to raise taxes to help with the balance sheet. Somewhere since 2001 the Republicans have gone so far to the right on taxes that are protecting the very people that do not care about this country or how their money is made.

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