A Brief Primer on the Fiscal Cliff

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The “fiscal cliff,” as it is known in Washington, remains poorly understood outside Washington, because it is technical and political and unrelated to adultery. But it’s important, because unless President Obama and Congress can work out a deal to avoid the cliff by January 1, the U.S. could plunge into a recession. Here are answers to a few basic questions about a crisis Washington forced on itself:

Would going over the fiscal cliff expand the deficit? No, it would shrink the deficit. The Bush tax cuts would expire, increasing revenues. Federal spending would be reduced by $1.2 trillion over ten years—half from the military, half from the rest of the government—decreasing costs. Unfortunately, austerity in the form of higher taxes and lower spending would make a weak economy weaker. Even Republicans who have spent four years arguing that spending cuts would boost the economy are now warning that Pentagon spending cuts could tank the economy.

Is someone trying to raise taxes on the middle class? No, Obama wants to extend the Bush tax cuts on income up to $250,000, while the GOP wants to extend them for income above that as well. But in 2010, Republicans refused to extend the tax cuts for the bottom 98% unless Obama agreed to extend them for the top 2%. The president agreed last time, but he has promised not to do that again.

Doesn’t everyone have an incentive to compromise? Not necessarily. House Speaker John Boehner could face a leadership challenge if he tries to cut a deal with Obama, while Senate Minority Leader Mitch McConnell could face a primary challenge. Politically, obstructionism worked for the GOP in 2010. Meanwhile, the president could actually strengthen his hand by letting the Bush tax cuts expire and then proposing new “Obama tax cuts” to replace them. And the “cliff” does not have to be as steep as it sounds; even if the politicians fail to reach a deal before January 1, they can always agree to reverse the spending cuts later.

67 comments
paulejb1
paulejb1

Forget all the BS from Obama about taxing the rich to cut the deficit. You can't tax the rich enough to pay for all the schemes pushed through by Obama and his merry band of looters and pillagers. 

The fact still remains: IT'S THE SPENDING, STUPID!

Sue_N
Sue_N

The “fiscal cliff,” as it is known in Washington, remains poorly understood outside Washington, because it is technical and political and unrelated to adultery.

Heh.

Hollywooddeed
Hollywooddeed

Tammy Faye Boenher:  I pledge allegiance to Grover Norquist.

gumOnShoe
gumOnShoe

I think Krugman got it right when he said "Austerity Bomb" was a better description than fiscal cliff. People think we are about to drive off a cliff, fiscally speaking, but what we're really doing making our deficit smaller, which could start a recession. So in a lot of ways this is accurate yet inaccurate.

Austerity bomb get's right to the point. When the austerity bomb goes off, spending stops for many things which will affect both our deficit (by shrinking it) and our output (by shrinking it).

If people have a problem with the Austerity bomb, they must like stimulus and be secret Keynesians. If republicans really really really wanted to be the party of deficit reduction, then they'd have no problem letting this bomb go off.

fitty_three
fitty_three

The economic collapse in 2008 coupled with Obama's election(s) presented paulejb with a choice:

1. Accept the GOP as the failure it is

2. Go insane

paulejb picked door #2...

paulejb1
paulejb1

The USA jumped off the fiscal cliff on November 6. The voters chose self immolation rather than give up the promised "free" stuff. Too bad.

fitty_three
fitty_three

Fiscal Cliff.....................fisk al klif

1. The vertical scarp on a dune of money, usually the leeward side

2. The altar the GOP uses to sacrifice the middle class

DonQuixotic
DonQuixotic

 Millionaire "Supertax": It's about fairness

France's Socialist President François Hollande is the talk of Europe for his planned 75% tax rate on individual incomes over €1 million. When enacted, the new rate will catapult France to the top of the list of high-tax countries.

Hollande has defended the new rate as part of his effort to shrink France's budget deficit. But the new "supertax" is about more than raising money. It is also designed to make a point. "It's symbolic," Hollande has said. "It will show an example."

Indeed, that's the essential nature of very high rates on very rich people. They aren't really about raising money, although they can do that pretty well sometimes. Rather, they are designed to make a political statement about fairness and economic justice.

In Washington, of course, the fight is over whether to raise the top rate to a level just over half the amount they are arguing about in France -- to 39.6% from 35%.

By contrast, numerous countries have top rates in the low to mid-50s, including Austria, Belgium, Denmark, Finland, Japan and Sweden. The world's highest rate is levied in sunny Aruba, where people making more than $171,000 face a top rate of 58.95%, according to figures compiled by KPMG.

Still, that's a long way from Hollande's 75%. But U.S. history offers a refuge for Hollande and other fans of supertaxes on the rich. The United States had a top rate of 70% as recently as 1980. 

MrObvious
MrObvious

Twice now Obama have campaigned (and won) on raising the taxes (or rather having the tax cut expire) that if I hear another rightwing moron talk about unprecedented  unconstitutional, Marxist or whatever that person deserve to listen to A-track tape of some really horrible 70s music for 3 days straight.

If we have to endure the torture of poor understanding of basic social and political science then we deserve to watch the morons suffer.

nhautamaki
nhautamaki

Seems like a win-win for the Democrats to me.  The Republicans painted themselves into a corner and now they have no choice but to do a deal with Obama on the tax cuts, or let them expire and have Obama turn around and propose tax cuts on the bottom 98% that they now have to vote against (don't worry, they'll twist the logic until it makes sense even to Grover).  Of course, these sorts of birthday cakes are just the kinds of things that Democrats have a habit of dropping on the floor.

roknsteve
roknsteve

Ok, we know you're Bobby Jindal so you can knock off the act.  And you blog just like him too.

paulejb1
paulejb1

@Sue_N ,

It has to be explained to the low information voters who came out for Obama as an end to the gravy train. They would get that clearly enough.

shepherdwong
shepherdwong

@gumOnShoe And any minute now, the Very Serious Beltway Pundits are going to explain that Very Serious "deficit hawks" claiming that deficits and debt are at the heart of our economic woes and must be addressed immediately, who are now wringing their hands over the deficit-busting "fiscal cliff," are manifestly unserious.

nflfoghorn
nflfoghorn

...and, in game-show terms, got zonked.

DonQuixotic
DonQuixotic

@53_3 

But he already was insane, he's just doing what he does best; make connections that don't exist to prove that everything under the sun is Obama's fault.

nflfoghorn
nflfoghorn

The holdup as I understand it is that the House won't undo what it did--they won't allow the USPS to use the overpayment $ from the pension plan to help with the shortfall.  Is this a messed-up legislative body or what?

Sue_N
Sue_N

@DonQuixotic They're  so determined to break the union they'll break the postal service with it.

shepherdwong
shepherdwong

@paulejb1 Too bad for Republicans that they decided to wage class warfare against half the country, in addition to to their racist attacks on a third of the country. Very good for the rest of us though. Congratulations, President Obama and the Democratic Senate majority.

MementoMori
MementoMori

@paulejb1  

Hey look! More stuff paulie's wrong about.

The only thing that jumped off a cliff on Nov 6th was your credibility.

MrObvious
MrObvious

@paulejb1 

Don't worry. We'll drag you along kicking and screaming as we fix the problems and pull you away from the gov teet.

AlistairCookie
AlistairCookie

@DonQuixotic ..."It's symbolic"...

This is my opinion.  Raising marginal tax rates a few points on uber-incomes (and putting capital gains back in the 20-25% range) won't solve the deficit.  It'll help, sure, but it's not enough to fix it.  (I can do math!)  But it's the symbolism of the move.  Also, when someone is a multi-millionaire, they can afford a marginal rate increase and STILL be a multi-millinaire.  That's the other thing.  If the super rich pay a higher tax rate then their secretaries, they are still super rich!  Just like if they have to pay 20% on capital gains instead of 15%, they will STILL make their investments, because they will STILL turn a profit.  Duh!  Seriously...math. 

outsider
outsider

@DonQuixotic 

Bring it back to 70. Just do it amid the howling. 

I know i know - it won't happen - but that doesn't mean it shouldn't. 

nflfoghorn
nflfoghorn

I suggest Air Supply's Greatest Hits on a loop. 

outsider
outsider

@MrObvious 

And sticking it to Grover Norquist is just icing on the cake. 

The fact that an unelected spoiled brat gets to set policy for one of the two major parties is ridiculous. 

It's literally selling the gov't out - by one of the party's who want control of the nation. 

It's astounding. And a sad commentary on the prostitution of the GOP. 

Sue_N
Sue_N

@nhautamaki I'm hoping that the Dems have finally had enough of bending over and trying to play nice and are now pissed off enough to start gouging some eyes.

nflfoghorn
nflfoghorn

BJ speaks in rapido-fire.  Like he's got to catch a bus to Nagodoches or somethin'.

mantisdragon91
mantisdragon91

@paulejb1 @Sue_N A Guy collecting unemployment and living in the right wing bubble talking about low information voters on the gravy train. Ohh the irony.

Sue_N
Sue_N

@paulejb1 @Sue_N You just keep preaching the gospel of bitterness and hate, sweetcheeks. You're not hurting anybody but your own party.

bobell
bobell

There's a high, steep cliff in paulejbland.  Paule's sanity fell off it some years ago.  Watch your step!

Sue_N
Sue_N

@outsider2011 @MrObvious It's also beyond hypocritical that the party that loves them some Constitution has given such power to an unelected idiot who came up with his plan when he was 12.

MrObvious
MrObvious

@outsider2011

I wish our Media looked at THAT instead of the he/she said BS. If Media started beating on the fact that a unelected lobbyist have such power over our elected officials then people would eventually wake up and wonder how come their votes don't count but someone who takes MONEY to influence our politicians does.

Ohiolib
Ohiolib

@Sue_N @nhautamaki You know what they say; the democrats never miss an opportunity to miss an opportunity. 

nflfoghorn
nflfoghorn

It's my understanding Paulie was under Sandy's grip for a while.  So all that FEMA $ that went to helping him get his power back on was gravy.  Hmph.

fitty_three
fitty_three

@Sue_N

I had heard that when it found out where it was, it chawed it's own legs off in order to escape.

MrObvious
MrObvious

@bobell 

You forget - we don't live in rightwing nuttia. Full of cliffs and broken pillars.

Reality is a lot flatter.