As families get set for the hectic holiday season that is December, the fiscal cliff draws ever closer. The remaining days are dwindling before the United States of America goes careening into self-imposed financial ruin.
Negotiations to avoid the fiscal cliff have gotten off to a rocky start. Such proposals as made Thursday to congressional negotiators by the administration of President Obama, were never mentioned in the 2012 campaign, and both Republicans and Democrats remain far apart on how to avoid the large tax increases and across the board spending cuts set to begin January 1.
House speaker John Boehner on Thursday said of talks underway, that “no substantive progress has been made.” If nothing is done, every family faces a tax increase.
Treasury Secretary Timothy Geithner, the president’s lead negotiator, on Thursday proposed to congressional negotiators, raising tax revenues by $1.6 trillion, while offering no entitlement reform.
The administration also sought at least $50 billion in new economic stimulus spending.
President Obama’s negotiators also sought the ability to raise the nation’s borrowing limit unilaterally, by executive decree. Currently, congress must approve an increase in the debt ceiling, and it was an impasse over that issue that brought the country perilously close to default in 2011.
Besides raising taxes, Geithner was reported to have proposed a one-year delay in scheduled $1.2 trillion spending cuts to defense and domestic spending and a $400 billion reduction in Medicare funding.
No matter what happens, there are zero “middle class” tax cuts, only rates staying where they’ve been for the past 10 years.
Obama has been pushing to raise the tax rates on couples earning more than $250,000 and individuals earning more than $200,000. But those wouldn’t produce revenues anywhere near $1.6 trillion over a decade.
Meanwhile, on Monday, on the heels of record sales over the Black Friday weekend, the White House warned that automatic federal tax increases set for next year could hurt the rest of the holiday shopping season and would likely crimp consumer spending by about $200 billion in 2013.
The report released Monday projects that if congress fails to act and middle-income taxes rise, consumer spending growth could be sliced by 1.7 percentage points and economic growth overall would probably be cut by 1.4 percentage points in 2013. Those are not small numbers given that consumer spending drives about two-thirds of U.S. economic activity and that the American economy has been growing by just a little more than 2% since a slow recovery began.
The following provisions of current law are most involved in the fiscal cliff:
Across-the-board spending cuts (“sequestration”) to most federal programs; expiration of the Bush-era tax cuts; reversion of the Alternative Minimum Tax thresholds to their 2000 tax year levels; expiration of the 2% Social Security payroll tax cut; unemployment benefits extensions expiring; and new health care regulations imposed by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, otherwise known as “Obamacare.”