Happy New Year: Are we Really Heading Over the Cliff?

Posted on December 6, 2012. Filed under: Uncategorized | Tags: , , , , , |

By Scott Orr

BoehnerIf the U.S. Treasury could get a dollar for every time someone in Washington uses the term “fiscal cliff,” the budget deficit could be erased in no time.

But sadly, all the talk about the fiscal cliff is worthless and, in the latest round of Washington high stakes brinksmanship, America is left to watch the political theatre and pray for common sense to prevail. This, of course, never happens.

The fiscal cliff, for those who have been too disgusted with Washington to tune in, is the new term for a fiscal perfect storm beginning in 2013 as tax increases and spending cuts automatically take effect. If nothing is done, economists predict a dive off the fiscal cliff that could plunge the economy back into recession.

So naturally, both the Obama White House and Republicans in Congress have dug in their heels and are refusing to compromise. If nothing happens, the Bush tax cuts will end in January, raising taxes not just on the rich, but on all Americans.

Obama wants to achieve $4 trillion in deficit reduction over 10 years by eliminating the Bush tax cuts on families that make more than $250,000 per year and cutting Medicare, Medicaid and military spending. Those in the very top bracket, about 2 percent of Americans, would see their tax rate restored to what it was under Bill Clinton: 39.6%.

House Republicans, most of whom have signed the no-new-taxes pledge explained in the story below, have said they can save $2.2 trillion through tax reform, health care cuts and other cuts in discretionary and mandatory spending.

Fresh off his November victory, won in no small part on his promise to protect tax cuts for the middle class while increasing taxes on the rich, Obama definitely has the political capital to sustain his position. So it’s up to the Republicans to decide if their commitment to maintaining tax cuts for millionaires is worth allowing tax cuts for the 98 percent of Americans to lapse.

There is probably some room for compromise, perhaps raising taxes only on families making over $500,000 per year, or $1 million per year. At the moment though, with more than three weeks left in the year, neither side appears flexible with both plotting to blame the other if America falls over the fiscal cliff.

Which brings us back to Washington’s most overused buzzword.  It is certainly a fiscal situation, but it is hardly a cliff so don’t let fear harsh your buzz at midnight on New Year’s Eve. The U.S. economy will not crash and burn as the clock strikes 12, in fact the two sides could well continue talks into the New Year with no major impact on the economy.

Perhaps fiscal bungee diving would be a better phrase.

Turner GPA is a leading D.C.-based national lobbying and government affairs firm dedicated to delivering cutting edge policy advocacy for the manufacturing, defense, aerospace, health and energy industries. Members of our professional policy team can be reached at (202) 466-2511. We are also on the Web at www.turnergpa.com.

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