The Fiscal Cliff... What is it and what does it mean to you?

[Warph]

The nation is now firmly on track to go over the fiscal cliff in January 2013 unless Washington takes action. The uncertainty leading up to the fiscal cliff—especially Taxmageddon—is already hurting the economy today and, according to projections by the Congressional Budget Office, could send the country back into recession in 2013.[1]

Individuals, families, businesses, and the military would all be hit hard by the fiscal cliff, but Congress and the President have yet to act to avoid this economic and defense disaster. Here are specific recommendations for how to avoid the four main parts of the fiscal cliff.


1. Taxmageddon

Seven different categories of tax policy expire on January 1, causing a $494 billion tax increase in just one year. This is uncharted territory: Never has there been such a steep tax increase in a single year.

Most of this massive tax increase stems from the expiration of the 2001 and 2003 tax cuts implemented under President George W. Bush. There is also the payroll tax cut, the alternative minimum tax patch, and a host of other policies that expire at year's end.[2] In addition, five of the 18 tax increases built into Obamacare are scheduled to go into effect. Families will bear the brunt of this tax increase among American households, with an average increase of over $4,100 in taxes.[3]

Uncertainty created by the prospect of Taxmageddon is continuing to hurt the economy today. Businesses are increasingly concerned about a jump in their own tax burdens and, given the economy's poor outlook into next year, are reluctant to hire or invest. In 2010, President Obama reversed course and extended all expiring tax policies, arguing that the economy was too weak to sustain a major tax hike.[4] This is just as true today as it was then, with this year's third-quarter GDP growth of 2 percent being lower than fourth-quarter 2010 growth of 2.4 percent.

Recommendation: Free businesses, investors, and families from uncertainty by extending current policy for all Americans permanently or for at least two years. This will provide time and momentum for pro-growth, revenue-neutral tax reform, which is overdue. Also, stop new Obamacare taxes, especially the tax on non-wage income.


2. Sequestration

The Budget Control Act of 2011 (BCA), a product of last summer's debt-ceiling deal, increased the debt limit by $2.1 trillion in exchange for spending cuts. The BCA first established caps on discretionary spending to accomplish $900 billion[5] in savings over 10 years and then tasked a "super committee" with finding at least $1.2 trillion more in savings. The super committee's failure to reach agreement triggered sequestration—automatic budget cuts—totaling $1.2 trillion (including interest savings) over nine years. Sequestration cuts begin on January 2, 2013.

The Department of Defense would bear the greatest burden—49.5 percent of total cuts in 2013—even though it accounts for only 16.8 percent of total spending. About $55 billion of those cuts will hit in January 2013.

This would be a mistake. The world is still a hostile place, and such massive cuts directly affect the readiness of the military and supporting industries and personnel to respond to future threats with next-generation equipment and training. The military should be ready before these threats require direct military action, which requires maintenance of American forces.

Recommendation: Prevent cuts in defense from sequestration for 2013 at a minimum, preferably with cuts in other spending.[6]


3. The "Doc Fix"

Medicare is set for another crisis point come December 31, when Congress's latest "doc fix" agreement expires. As part of the Balanced Budget Act of 1997, Congress adopted the Sustainable Growth Rate (SGR) formula to pay doctors for treating Medicare patients. The SGR's formula led Congress to choose between paying doctors less and patching together short-term fixes to keep reimbursing doctors.

Unless Congress patches together another doc fix agreement before December 31, physicians will see a 27 percent decrease in pay, a situation that will make it unaffordable for many doctors to continue accepting Medicare patients. This could leave millions of seniors without care. These doc fix agreements, which Congress has renewed almost annually since 2003, do not solve the growing problem of unsustainable Medicare costs; they only delay a real solution.

Recommendation: Prevent the immediate cuts to Medicare providers, preferably by choosing alternative savings. Then, in the new Congress, end the SGR formula, thus eliminating the need for the annual doc fix, and fix Medicare for the long term with a premium-support model that benefits from competition and provides consumer choice.


4. Emergency Unemployment Benefits

Involuntarily unemployed workers receive income support through the joint state–federal Unemployment Insurance (UI) program. Normally, states provide benefits for up to 26 weeks and an additional 13 weeks in states with high unemployment. In 2010, Congress created temporary additional federal UI benefits, extending the maximum length of benefits to 99 weeks (two years). Last February, Congress gradually reduced the maximum benefit duration to 73 weeks.

The federal government currently provides 100 percent of funding for these additional benefits, which expire at the end of the year. The additional federal benefits will cost $26 billion for the remainder of fiscal year 2013.

Providing UI benefits for a longer time during a deep recession can make sense, because it can take longer to find new work. However, extending UI also increases unemployment and can hurt those it is meant to help.[7] Extending benefits for too long encourages the unemployed to postpone job searches or hold out for something that may not be attainable.

Even with the difficult job market, the current duration of benefits is excessive. Today, the average duration of unemployment is 40 weeks (nine months).[8] Providing 60 weeks of UI payments would increase benefits proportionately to the detriment of the labor market.

Recommendation: Make any decision to extend UI benefits on humanitarian grounds, understanding that this spending will not boost the economy. If Congress chooses to maintain extended UI benefits beyond six months, it should reduce them to 52 or 60 weeks and pay for it by reducing spending on less beneficial programs. It should also require UI recipients to improve their skills (for example, through online education). As the labor market continues to improve, Congress should further reduce UI benefits, fully phasing them out when unemployment returns to normal levels.


Avoiding the Cliff

Congress and the President should show principled leadership by avoiding tax hikes on all Americans and by offsetting defense sequestration with cuts in spending elsewhere.[9] Rather than try for some "grand bargain," lawmakers should simply steer clear of the fiscal cliff by neatly paving the way for entitlement reform and pro-growth tax reform.

Show references in this report:
[1]See J. D. Foster, "Obama Could Prevent a Made-in-Washington Recession," Heritage Foundation Issue Brief No. 3742, September 26, 2012, http://www.heritage.org/research/reports/2012/09/recession-2013-washington-policies-and-cbo-s-recession-forecast.

[2]See Curtis S. Dubay, "Taxmageddon: Massive Tax Increase Coming in 2013," Heritage Foundation Issue Brief No. 3558, http://www.heritage.org/research/reports/2012/04/taxmageddon-massive-tax-increase-coming-in-2013.

[3]The Heritage Foundation, "How Will Taxmageddon Impact You?," June 11, 2012, http://www.heritage.org/multimedia/infographic/2012/06/how-will-taxmageddon-impact-you.

[4]See Foster, "Obama Could Prevent a Made-in-Washington Recession."

[5]The Heritage Foundation, "Sizing Up the Budget Control Act and Sequestration," October 16, 2012, http://www.heritage.org/multimedia/infographic/2012/10/federal-spending-by-the-numbers-2012/sizing-up-the-budget-control-act-and-sequestration.

[6]See Patrick Louis Knudsen, "$150 Billion in Spending Cuts to Offset Defense Sequestration," Heritage Foundation Backgrounder No. 2744, November 15, 2012, http://www.heritage.org/research/reports/2012/11/150-billion-in-spending-cuts-to-offset-defense-sequestration.

[7]See Bhashkar Mazumder, "How Did Unemployment Insurance Extensions Affect the Unemployment Rate in 2008–10," Federal Reserve Bank of Chicago Essays on Issues No. 285, April 2011; Jesse Rothstein, "Unemployment Insurance and Job Search in the Great Recession," National Bureau of Economic Research Working Paper No. 17534, October 2011; and Rob Valletta and Katherine Kuang, "Extended Unemployment and UI Benefits," Federal Reserve Bank of San Francisco Economic Letter No. 2010–12, April 19, 2010.

[8]Ibid.

[9]See Knudsen, "$150 Billion in Spending Cuts."

[mtcookson]

What better way to increase taxes on everyone then lay blame on the republicans?

[Warph]

Washington (CNN) - A national poll indicates more Americans would blame Congressional Republicans than President Barack Obama if negotiations to keep the country from falling off the "fiscal cliff" fail.

A Washington Post/Pew Research Center survey released Tuesday morning also indicates 49% of Americans predict the president and Republicans in Congress will not reach an agreement to prevent the automatic spending cuts and tax increases that would kick in at the end of the year, with four in ten saying a deal will be reached.

Last year Congress and President Barack Obama agreed to a program to reduce the federal deficit that some people refer to as the "fiscal cliff." Unless Congress and the President reach an agreement before January 1, tax rates will automatically rise next year for nearly all Americans and major spending cuts will automatically begin to kick in for most government spending programs, including military programs.

If there's no deal, according to the poll, by a 53%-27% margin people say Congressional Republicans will be more at blame than Obama, with 12% saying both sides should be equally blamed. Among independent voters, 52% would blame Republicans and 21% would point fingers at the president.

A CNN/ORC International survey released last week indicated more Americans would blame the GOP in Congress (45%) rather than Obama (34%) if the fiscal cliff provisions actually go into effect next year.

Fifty-seven percent of those questioned in the Washington Post/Pew Research Center poll say they understand "very well or fairly well" what would happen in January if the automatic spending cuts and tax increases go into effect. Nearly two-thirds say such spending cuts and tax increases would have a major effect on the country's economy, and 84% say those effects would be mostly negative.

Forty-three percent say if the country falls off the fiscal cliff, it would have a major impact on their personal financial situation, with 35% saying there would just be a minor effect.

The Washington Post/Pew Research Center poll was conducted November 29-December 2, with 1,003 adults nationwide questioned by telephone. The survey's overall sampling error is plus or minus 3.5 percentage points.

[Warph]

                   


The crisis du jour in Washington now dominating the news, the so-called "fiscal cliff", is but the latest in seemingly endless political crises that we shouldn't be having.

We get two different kinds of problems in life. The real ones – the struggle to work and improve the quality of our lives – and the ones we bring on ourselves through poor behavior.

The more time we must deal with the latter type, the less time and energy we have to deal with life's real problems and challenges.

The political crises which emanate from Washington are invariably problems of the type that result from poor behavior. And this latest, the "fiscal cliff", is no exception.

Let's recall that the automatic tax hikes and spending cuts that are scheduled to occur January – the "fiscal cliff" – are the result of the failure of Republicans and President Obama to agree on a budget deal as condition for raising the debt ceiling last year.

Why do we have to keep raising the debt ceiling? Because politicians are afraid to be honest with the American people and immediately raise taxes to pay for all their new spending. So instead of raising taxes and paying for our new bills when we incur them, they just borrow the money.

Anybody who doesn't pay the full balance on their credit card bill each month knows what this is about.

Except there's one big difference. You run up your credit card bill on your own account. You are the one that is on the line for your own bills.

Politicians run up bills on our account. We're on the line for what they spend.

They could be honest. When they have their wonderful ideas about what they want to spend our money on, they could go right to taxpayers and say we are going to spend X for Y so we will raise your taxes Z to pay for it. OK?

They don't do this because they know it is not okay. Politicians know that the money they are spending ultimately will come out of every American household. And if they go to those households, to those actually responsible to pay the bills, and the heads of those households know they don't have the money, they will say "NO". Don't spend the money and don't raise my taxes.

So politicians don't ask.

And our constitution, which originally was supposed protect the property of citizens, is now so degraded that they can do this.

They just spend the money and borrow, on our behalf – often from those overseas like the Chinese – to pay the bills.

Then they tell the American people about all the great ideas they are spending money on. Bail out companies that have failed. Green energy. Extend unemployment benefits so you can collect for four years. And so on.

It all sounds so wonderful and innovative and compassionate. And even better – somebody else is paying for it all. We think.

Now our debt, at over $16 trillion, is bigger than our whole economy. More than 100% of our GDP.

Investment guru Bill Gross, of PIMCO in Newport Beach, California, has been writing that the "new normal" for economic growth in the US will be below its historic average.

What is one of the major reasons why? He cites research by Harvard economists Carmen Reinhart and Ken Rogoff which shows that "for the past 200 years, once a country exceeded 90 percent debt/GDP ratio, economic growth slowed by nearly 2 percent....for an average duration of nearly a decade."

Part of President Obama's proposal to bypass the "fiscal cliff" is to get rid of the requirement that Congress must approve increases in the debt limit. I wonder why?

It's time for responsible behavior and hard choices. If we can't just cut spending, let the "fiscal cliff" kick in.


....by Star Parker

[redcliffsw]

Star Parker stands for many good things. 

[Warph]

Star Parker stands for many good things. 

I agree... I enjoy reading her articles.

[Warph]

             Daniel Altman: Fiscal Cliff, Schmiscal Cliff.

                     

Published on Dec 4, 2012

Daniel Altman became the London-based economics correspondent of The Economist, then joined The New York Times as one of the youngest-ever members of its editorial board and later wrote economic commentary for the business section. Here Altman addresses the dreaded "Fiscal Cliff."


Transcript--
The United States ran up big debts during the global financial crisis and the recession in the aftermath trying to stimulate the economy and make sure that we didn't deep dive into an even deeper recession than where we already were.  That makes sense because if you're in the middle of a downturn it's not a good time to put on the brakes with fiscal austerity, raising taxes to raise more money,and cutting spending to tighten the government's belt.

It especially doesn't make sense if you can borrow at low interest rates.  And during the recent crisis, the United States could borrow at some of the lowest interest rates in its history, and that's why our debt problem is not as urgent as a lot of people may say.  Right now the debt service that we pay, that's the interest payments that we pay all the time, are at a very low rate.  In fact, they were much higher during the Reagan and first Bush Administrations.

This may not last forever because interest rates can rise, just as they can fall.  And if interest rates do rise, which typically happens when the economy recovers and there's more demand for credit, then we will have to start paying a little bit more and we'll have to start thinking more about how we're going to close that big debt gap.

We have several years before that happens, though, so we can phase in a nice gradual solution without making any sharp cuts to spending and without making any sharp increases in tax rates.  But over the long term, there's no doubt -- we need to cut spending a little bit and we need to have higher tax rates because right now we have some of the lowest effective tax rates since the 1940s and at a time when people expect more than ever from their government.  We'll have to deal with Social Security and Medicare, too, but we typically do that by extending the retirement age a little bit, cutting benefits a little bit, and maybe we'll even remove benefits from some higher earners.

All of these things together will help us to close our debt gap, but we don't have to do it in a sharp shocking way today.  We have a few years of runway to do it. It's definitely not a good idea just to kick the can down the road and let the next government deal with it.  It's tempting to do that because people in this government are more concerned about re-election than what might happen ten or 20 years from now, but we can use the time that we have to phase in these changes so that there aren't abrupt dislocations in our economy.  A responsible Congress would act now setting a plan that would phase in these changes over the next five to ten years.

[Warph]

Why the Fiscal Cliff is a Scam

James K. Galbraith is an American economist who writes frequently for mainstream and liberal publications on economic topics. He is currently a professor at the Lyndon B. Johnson School of Public Affairs and at the Department of Government, University of Texas at Austin. He is also a Senior Scholar with the Levy Economics Institute of Bard College. He is also part of the executive committee of the World Economics Association, created in 2011.

James Galbraith: Is there a looming crisis of debt or deficits such that sacrifices in general are necessary?


                 

Published on Dec 3, 2012

James Galbraith: Long term higher taxes on rich will have little affect on economy; higher taxes for ordinary people could deepen recession over time but there is no emergency


                 

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Published on Dec 3, 2012

James Galbraith: There is no emergency, the best thing for Congress to do is go home and let the new Congress deal with issues next year


                 

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[Warph]

Update from Walmart

by Joel Belz - World Magazine
Dec. 26, 2012


                         

~~~> The Fiscal Cliff <~~~

                               

                             

James Devine wasn't at all sure he wanted to talk to me. Here we were just outside a Walmart superstore in northeast Philadelphia, next to a strip of historic U.S. Highway 1 that a few years ago had looked like a main street in Eastern Europe during its worst post-war days. Now the whole place had a distinctly up-to-date look.

I had just asked Mr. Devine, whom I guessed was maybe 30 years old, if I could borrow his thoughts for a few minutes as part of a public opinion survey. I asked him if he'd ever been interviewed by a "national magazine," and that got his attention. How worried was he, I asked for starters, about this thing the experts were calling the fiscal cliff. "Oh, yah—that," he said with a grin. "To tell you the truth, I don't have a clue what they're talking about. And I'm not sure they do either."

Longtime readers of this column are better prepared than Mr. Devine was for what was going on. Once a year or so I've made it my practice to do an informal sidewalk survey just outside the entrance of the Walmart close to my office. I typically try to talk briefly with 25 to 30 people, chosen at random. I've never argued that my surveys have any statistical legitimacy. They simply provide a casual snapshot of how a handful of blue-collar Americans—Walmart shoppers—tend to think.

This was the first time I've done such a survey away from my local base in Asheville, N.C. And I was startled at how little difference there was between Asheville and Philadelphia, in both the content and the attitude of those men and women with whom I talked.

Content. In my 25 to 30 mini-interviews, I was startled how little these folks knew about the basics. Only a handful of them even tried to summarize what a "fiscal cliff" was all about. Only one had even a remote idea what the term "Arab Spring" signified. Not a single one even tried to respond when I asked, "Do you ever worry that our government may be taking on too much of a European feel?" I was speaking a very foreign language.

These were not, after all, a bunch of adolescents. They were adult Americans, out shopping with their families. At least half of them had reached or were at least approaching what we call middle age. But for the most part, they were simply unable to use the common tools of conversation to talk about the world and the society in which they find themselves.

Attitude. Or maybe it wasn't that they were unable to enter the discussion. Maybe they were just unwilling. James Devine's grin when he told me he "didn't have a clue" what the fiscal cliff was all about was disarming—but it was saddening and even a little bit chilling. How could someone live and listen through the countless news cycles of the last couple of months—during which the media have talked sometimes of little else—and not be ready at least to take a stab at the matter? And, yes, this man was quite specific when he said he had voted in last month's election.

My Walmart poll this time around had virtually nothing to do with agreement or disagreement on the issues. This wasn't about whether a Democratic president or a Republican Congress has the best ideas for rebuilding our nation's economy. I would have enjoyed such a discussion, for sure. But this was emptiness. Walmart, Schmalmart! These were folks who seemed focused on little more than getting past the Salvation Army bell ringer without having to look him in the eye.

And maybe also getting past that guy from WORLD magazine with all those nosy and pesky questions. Well, you didn't get by me either! Have a thoughtful Christmas.

[Warph]

              

Senate Reaches Deal on Fiscal Cliff

As the clock ticked toward the fiscal cliff, the Senate reached a deal with President Obama and prepared to bring the agreement to the floor for a vote.

"The House will honor its commitment to consider the Senate agreement if it is passed," Majority Leader Eric Cantor (R-Va.) tweeted 20 minutes away from midnight.

"Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members — and the American people — have been able to review the legislation," House GOP leadership said in a statement.

"When a final agreement is reached and passed by the Senate, I will present it to the House Democratic Caucus," Minority Leader Nancy Pelosi (D-Calif.) said earlier in the evening.

The deal reportedly focuses on a $400,000 ceiling for the extension of Bush-era tax cuts (those above will be taxed at 39.6 percent) and a two-month delay on budget cuts to be offset in part by new tax revenue. That was a Republican concession. Long-term unemployment benefits are also extended for one year.

On the White House's part, Joe Biden gave in on the estate tax in a deal to spare estates worth as much as $15 million.

"We're going to save 99 percent of the people. We're going to make those tax rates, permanent, which is what I'm hearing, which is good," Sen. Rand Paul (R-Ky.) said on CNN.

"The only thing that kind of confuses me is if it's good to protect 99 percent of people from a policy akin to drowning, then why is it good then to go ahead and throw the 1 percent overboard and raise the taxes on those? Maybe because they can afford it?" he said. "Well, the problem is that a lot of us work for rich people."

After reaching agreement with McConnell, Biden scrambled to Capitol Hill to sell it to the Democratic caucus. Emerging nearly two hours later, when asked what his selling point had been, the veep told reporters, "Me."

The deal included a stop to President Obama's order raising salaries for federal workers — including members of Congress. Some lawmakers had vowed to bring legislation to stop the pay boosts for folks who haven't really done their jobs.

"Good news. In deal we will STOP any pay increase for Congress. Thank goodness. Good reason to vote for it," tweeted Sen. Claire McCaskill (D-Mo.).

Not that the late-night marathon session didn't have some levity. At one point, BuzzFeed's D.C. bureau chief tweeted that McCaskill "just stormed out of the Senate Dems meeting on the fiscal cliff deal."

"Seriously? This is silly. I walked out of caucus to get my phone which I left in my car. Get a grip press," McCaskill tweeted back.

And lawmakers did pause just long enough to ring in 2013.

"Happy New Year from the US Capitol," tweeted Sen. John Cornyn (R-Texas).


HAPPY NEW YEAR??  Are you kidding me??  The demo-rats just drove a stake through the heart of the Republican Party.  You reckon those who attempted and still attempt to effect a coup within the GOP will take responsility for having cake-walked the demo-rats back into controlling power for four more years... an income tax hike on the wealthy, more taxes coming from Obamacare, no control of government spending, no limiting the debt, no reining in the EPA, no reining in government subsides to states and municipalities, etc., etc., etc.

But, then again... why worry about it.  The nation is 16+ trillion in debt and all of this cliff talk is just theater.  It just doesn't matter anymore.... who won... who lost... fans arguing... its like watching a sporting event where no one has caught on that the exits are blocked and stadium is on fire.

Sitting back with my popcorn, some nice warm tea and ready tooooo be entertained by the tantrum parties that are about to begin.

....Warph