Teetering On The Edge Of The Fiscal Cliff

We’ve all heard about the “fiscal cliff” that is heading our way in January 2013.  If President Obama and Congress don’t act before then, a combination of tax increases and government spending cuts will automatically take effect.

The Tax Policy Center has now attempted to quantify the impact of the “fiscal cliff” on American taxpayers.  It finds that almost 90 percent of households would experience a tax increase.  The top 20 percent of taxpayers will bear 60 percent of the tax increases, but the tax increases will have an impact across the economic spectrum.  A middle-income family earning between $40,000 and $64,000 would pay an additional $2,000 a year, and families making between $110,000 and $140,000 a year would see a $6,000 tax increase.  In all, the government is forecast to reap an additional $500 billion in tax revenues.  Some people believe that the economy is already slowing to a zombie state because of fears of the new, bigger tax bite that will take effect in January.  Other economists fear that the combination of half a trillion dollars in tax increases and $109 billion in automatic government spending cuts that were implemented because the “debt supercommittee” couldn’t reach agreement on a deficit reduction will hurl the struggling economy into a full-fledged recession.

As I noted earlier, of course, this all will happen only if President Obama and Congress don’t act.  The President has been spending virtually every waking hour campaigning for re-election, and Congress has been inert for months.  So what do we have to worry about?

6 thoughts on “Teetering On The Edge Of The Fiscal Cliff

    • My friend Winship, I think we need less spending, period. I am fine with making prudent cuts to defense spending, but I also think we need to cut domestic programs, foreign aid, government subsidies of commodities, and government incentive programs — among others. As far as revenue goes, I have no problem with increasing the fees paid by people who use government services. Make the cruise ships that use our ports pay the sums needed to cover the salaries of customs agents and other related costs, for example. However, I think across-the-board income tax increases in the midst of a still-moribund economy is foolish and fraught with peril.

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      • We need shared responsibility, Simpson Bowles spread the pain across the socio-economic spectrum.
        It’s a great idea to institute user fees to generate revenue. Someone from Cornell recently had an OpEd piece in The NYT(?), I know it was someone from Cornell but I’m a bit hazy on the paper, advocating the same sort of user fee. I am happy to pay for using services that are federally funded.
        Occasionally, we are offered the opportunity to bid federal projects- you would be ill if you could see the wage scales set for those projects, wasteful, wasteful, wasteful!

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  1. I recently read Bob Woodward’s new book “The Price of Politics.” It is not a page turner like “All The President’s Men,” or even “The Bretheren.” In fact, the middle section of the book is a painstaking day by day, meeting by meeting, discussion of the path that has lead to the “fiscal cliff.”

    Woodward, who is certainly not a republican, or a conservative, attributes blame to house republicans (but also Nancy Pelosi), senate democrats, and President Obama.

    I’ve seen Woodward hawking his book on a few talk shows recently. During a recent interview by Wolf Blitzer of CNN, Mr. Blitzer asked Woodward who was more at fault for the impasse, house republicans or the President. Woodward didn’t directly answer the question, but responded (and I’m sure I’m paraphrasing) that ultimately, it is the role of the President to lead, and this President has not lead. Near the end of Woodward’s book he contrasts President Obama’s inability to work with the opposing party, with both Presidents Reagan and Clinton.

    Reagan had a republican senate, but a democrat house (led by Tip O’Neil). Clinton was forced to work with both a republican controlled senate and a republican controlled house for the last 6 years of his presidency.

    There is an interesting description at the beginning of the book of how the President’s stimulus bill came about. Woodward explains that the President refused to take a single suggestion from the republicans, and how Rohm Emmanuel (I may have just misspelled his name) simply told the republicans “(expletive) you, we have the votes.” Ultimately, the democrats did not take a single suggestion from the republicans when crafting the stimulus package. This, I believe, was the beginning of the dysfunctional impasse we have seen play out between the house and the senate over the past two years.

    The book is interesting, but (again), it is not a page turner.

    We’ll see what November brings.

    As always, thank you for the buffet of Webnerhouse posts.

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      • Dear elroyjones:

        Thank you for your kind words, However, I’m not sure I am worthy of the “deftly illustrated” characterization and compliment. Of course, now I am starting to sound like an unappreciative jerk who cannot take a compliment.

        My intention was just to add something to Webnerbob’s comments, and point to a source that others could look to for additional information about how we arrived at the “cliff.”

        Thank you again, elroyjones.

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