The election is over, it’s almost the end of year and the end of the 112th Congress, but two words we Americans have heard for nearly two years still ring in our ears: “fiscal cliff.”
The fiscal cliff is a term coined by Federal Reserve Chairman Ben Bernanke to describe the Jan. 1, 2013 deadline that Congress faces to extend Bush-era tax cuts for most Americans and postpone spending cuts that were triggered in 2011 when Congress failed to reach a deficit-reduction deal. If a deal isn’t reached before the end of the year, Americans can expect up to $800 billion in tax increases and $1.2 billion in spending cuts to kick in which, state legislative advocates say, could end up costing the federal government—which is us taxpayers—up to $8 trillion.
Data released recently by the nonpartisan Congressional Budget Office shows that allowing the tax cuts to expire and the spending cuts to take hold would also increase unemployment, at 7.9 percent in October, to 9.1 percent.
No, the words “fiscal cliff” are not reassuring.
It’s not that reassuring, either, that the rest of the world shares our dislike for the term and what it represents, or so international stock markets seem to indicate. The Associated Press reported that stocks fell across the globe Friday before last over fears that the cliff won’t be averted in time.
In Washington, D.C., where the cliff looms the largest, handwringing over the fiscal cliff has taken place long before the recent election season—years, in fact. Yet Capitol Hill is the only place where there appears to be a shred of optimism that there will be just enough resolution on issue to avoid any worst-case scenarios: “Leaders on both sides have signaled that they’re hopeful that the election will lead to a new spirit of compromise in the capital,” said an article on CNN’s web site two weeks ago.
The best-case scenario, at present, is what is being called a “framework deal” in which Democrats and Republicans compromise on revenue increases and spending cuts and spend most of the next year working out the details, say news reports. Reaching that kind of debt deal would allow largely America’s middle class to avoid a take hike while stopping automatic cuts in both defense spending and non-defense discretionary spending in areas like education and public safety.
Now, Congress just has to figure out how to get ‘er done.
According to the story posted on the CNN site last week: “Democrats and Republicans largely agree that the cleanest solution is to address all three crises with a massive reform effort that would both cut government spending and bring in more revenue. It would include changes to the personal tax code, entitlements and debt reduction targets.” And while both parties pretty much agree the work can’t all be done by Dec. 31, earnest negotiations could delay any back-breaking cuts, at least in theory.
The effect of the unresolved debt debate on the state was perhaps stated mostly clearly in an article called “A Fiscal Cliffhanger” in the most recent issue of State Legislatures magazine, a publication of the bipartisan National Conference of State Legislatures (NCSL). According to the article, many states are unable to plan their budgets because of the pending fiscal cliff. Many hope for compromise, or at least an extension of the tax cuts and postponement of the spending cuts.
An extension/postponement would, the article says, mean that “…this cliffhanger will be punted to the 113th Congress,” which will be sworn in Jan. 3.
Perhaps we won’t have to wait and work on a framework. President Obama invited Senate and House leaders to a meeting at the White House two weeks ago to step up negotiations. Compromise on a package is possible, but the reality is both sides still want to keep their options open.
House Speaker John Boehner of Ohio is still arguing against increases in tax rates on those with incomes above $250,000 (who would not be part of the White House’s proposed expansion of Bush-era tax cuts) and instead pushing for closure of tax loopholes and elimination of some deductions to raise revenue. Boehner, as most in the Republican party, has also urged reform to entitlement programs as part of any final debt deal.
But the House Speaker has also said that he favor a short term, one year, agreement (the framework) with a so-called “grand bargain” deal worked out after Jan. 1 and throughout 2013.
My prediction is that some framework deal will be reached with the hard scrabble reform taking place in the new year. And that should set the markets, or at least some of our minds, at ease.
More on happenings in Frankfort next week. Have a blessed Thanksgiving and wonderful start to the 2012 holiday season, and we’ll talk soon.