The fiscal cliff: Why is this even a thing?

Fiscal-Cliff-Forward

By Andrew Scoggin

With the merciful end to election season, the news cycle seems to have found its new obsession: the fiscal cliff.

But unlike so many of those campaign stories, the fiscal cliff could actually bring big changes on Jan. 1. Taxes would skyrocket and government spending would plummet, potentially harming a U.S. economy already in a precarious position.

We’ve touched on the topic a couple times already at Politically Inclined, but we thought it appropriate to lay out the basics. Those seem to get lost at times in all the bickering and rancor.

And if this all sounds familiar, well, it’s because this “cliff” is the culmination of many political standoffs.

What is it?

While it’s probably not a great metaphor (The Washington Post’s Wonkblog advocates we use “austerity crisis” instead), the fiscal cliff refers to an increase in taxes and automatic spending cuts set to take effect in 2013.

The Wall Street Journal has a brief breakdown, while the Post goes more in-depth for the number crunchers out there. But inaction would essentially take away 4 percent of the country’s GDP, and could freak out domestic and foreign financial markets.

Why is this happening?

Well the short answer is “politics,” but there’s a backstory here.

The automatic spending cuts arose from a debt deal in August 2011 that just barely passed under its deadline. That measure raised the limit allowed for borrowing by the United States, but also put in place a “sequester,” meaning across-the-board reductions in much of the country’s discretionary spending. Those would go into effect if no other action is taken by Jan. 1, 2013.

A so-called bipartisan congressional “super committee,” assembled to avoid these automatic cuts, failed to reach a deal by its November 2011 deadline, bringing us to where we are today.

Basically, Republicans and Democrats could not come to an agreement over a proper ratio of revenue (i.e. tax) increases to spending cuts.

What would happen without a deal?

That sequester, along with other cuts, would take effect, amounting to about $200 billion according to the Post. The so-called “Bush tax cuts,” enacted under the presidency of George W. Bush, would expire, raising taxes by $500 billion.

And that payroll tax cut extension passed just before its deadline last year? That would go away, too.

Other measures would expire as well, including tax credits for college tuition and extended unemployment insurance.

But perhaps most importantly, the general consensus is that if the current course continues, the United States could fall back into a recession. That’s bad news for anyone not named Kim Jong-un.

What are the main actors doing to solve this?

Both sides are talking and trying to put together a deal, which is certainly more than what they did in the first 10 months of 2012.

But political leaders haven’t made much headway thus far. House Speaker John Boehner said Friday the negotiations for a deal are “almost nowhere,” according to CNBC. President Barack Obama, meanwhile, took his proposal for higher taxes on the wealthy on the road to a toy factory in Pennsylvania, as well as Twitter with the hashtag “#My2k.”

The Republican contingent seems to prefer a cap on tax deductions rather than any increases in tax rates. At least one GOP lawmaker, however, has advocated for Obama’s plan to extend tax cuts only for low- and middle-income earners.

Does any of this make sense?

It doesn’t — at least not to most rational humans. Then again, the actions of politicians usually don’t.

Why would anyone wait until the very last minute, with the stakes so high, to figure this out? Certainly proper governance requires a delicate balancing act, but with all the talk of the economy and bipartisanship during the election, it’s odd that somebody didn’t put this on the front burner sooner.

Politically speaking, perhaps a lame-duck session of Congress is the best time for such negotiations. It’s another two years until midterm elections. If successful, the voting public might forget any concessions made during these talks.

This all sounds an awful lot like the mess that is the National Hockey League lockout. The league and the players’ union saw the crisis coming and seemingly did little in advance. The hockey season should have started in October and now is in danger of being wiped out all together.

But a missed Dec. 31 deadline in Washington will hurt many more people than a hockey lockout.

At this point, this about sums about my mood, and probably the rest of the U.S.:

misc-jackie-chan-l

Posted by on December 1, 2012. Filed under Economy. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

Fatal error: Uncaught Exception: 12: REST API is deprecated for versions v2.1 and higher (12) thrown in /nfs/c10/h06/mnt/148038/domains/politically-inclined.com/html/wp-content/plugins/seo-facebook-comments/facebook/base_facebook.php on line 1273