Get Ready to Fall Off the “Fiscal Cliff”


Pat Bagley, Salt Lake Tribune

NOTE: The latest is that an agreement is close — but no vote today. Which means: yep, seguro que si — the United States, no matter for how long, is going off the fiscal cliff. A deal not voted on by the deadline is effectively no deal in time. And so I’m REPOSTING and READATING THIS:

Here’s what was posted several days ago. The bottom line: no vote to keep us from tumbling off the cliff will come today.

Get ready, by all signs it’s gonna happen. We’re going off the fiscal cliff — in a Congress-created mechanism that (wrongly) assumed politicos would do the right thing and compromise rather than risk draconian measures that Congress itself set in place as a kind of Sword of Damacles.

In the short term and medium term, politicians and partisans will assign the blame, and historians will likely agree with some of that analysis.

But in the long term historians will likely conclude that Washington today typifies the old joke that Jesus could not have been born in Washington “because they couldn’t find three wise men.” This story says it all:

Nearly all the major players in the fiscal cliff negotiations are starting to agree on one thing: A deal is virtually impossible before the New Year.

Unlike the bank bailout in 2008, the tax deal in 2010 and the debt ceiling in 2011, the Senate almost certainly won’t swoop in and help sidestep a potential economic calamity, senior officials in both parties predicted on Wednesday.

With the country teetering on this fiscal cliff of deep spending cuts and sharp tax hikes, the philosophical differences, the shortened timetable and the political dynamics appear to be insurmountable hurdles for a bipartisan deal by New Year’s Day.

Hopes of a grand-bargain — to shave trillions of dollars off the deficit by cutting entitlement programs and raising revenue — are shattered. House Republicans already failed to pass their “Plan B” proposal. And now aides and senators say the White House’s smaller, fall-back plan floated last week is a non-starter among Republicans in Senate — much less the House.

On top of that, the Treasury Department announced Wednesday that the nation would hit the debt limit on Dec. 31, and would then have to take “extraordinary measures” to avoid exhausting the government’s borrowing limit in the New Year.

And so we’ll go off the cliff — driven off the cliff. Driven by partanship and politicians more fearful of keeping their seats than keeping what by all signs is a fragile recovery going.

(Your tax dollars at work..)

UPDATE: To temper my analysis with another. I have great respect for Time’s Mark Halperin as an analyst. Here’s what he writes this morning — which also suggests we need to put on our parachutes (which by the way won’t work when you fall off a cliff):

At this point, even if Mitch McConnell wants to lead a last-second deal, it might not be possible. But his backing is certainly a necessary condition.

One of the biggest factors right now: the momentum and pressure for a compromise from cliff-adverse CEOs has dissipated. With the exception of the Gentleman from Starbucks, most other business shoguns are off on holiday, not focused on the Beltway. Republican leaders aren’t facing too much deal-or-no-deal cross currents now.

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23 Comments

  1. All because the GOP has to defend their top donors. They thought they took a shelacking(sp?) this year, wait till 2014 if they can’t come to their sense now.

  2. CEOs are nonplussed because they are preparing for large layoffs & offshoring of jobs. They love to use any excuse to slash costs, and this will be a big one.

    They aren’t loyal to the country, and neither is Congress.

  3. This is an outrageous situation forced by Republicans who refuse to give up any adequate amount to tax increases and, as Mr. Gandelman observes, are held hostage by tea party hooligans who have made them fear for their jobs in the next elections.

    There is an illusory idea floating around that somehow Democrats are being equally stubborn and therefore share the blame for this travesty equally, however, as the President said,compromise does not mean that one side must completely comply with the demands of another—only that no one can get everything they want. In that spirit, I see Obama as one of the few adults in the room who is at all willing, to make generous concessions.

    Unfortunately, if we must surrender to Republican intimidation as a prerequisite for making any real changes, I have to say that, in that case, we should go ahead and go over the cliff! I say this because Republicans have already pledged to contest the next NECCESSARY raising of the debt ceiling—in order to pay for debts already incurred! This must be done, or risk a further lowering in our credit rating, and by destroying budgetary leeway when paying future unknowns like federal aid being supplied in response to the natural disasters we are currently plagued with. I think it’s obvious from considering the functions of our government, that we are not like a private household, that can (relatively)and easily, tighten its belts in response to increased expenses.

    Unfortunately, if the president gives in to such intimidation, we will never have a stable government again, and,as long as the tea party continues to grandstand its ideology by making one extreme demand after another, they have guaranteed that the President has no choice but, to resist!

    According to a Treasury Dept. study, only 2.5% of small business owners will face tax increases, and there is little, or no, historic evidence that raising these taxes as minimally as has been proposed, will have any effect on economic growth. In fact economic growth was stronger after Clinton’s 1993 tax increases than after the 2001 Bush tax cuts. Some Research has also indicated that tax cuts for small businesses are not likely to increase hiring because, before they see a pickup in their sales, businesses are unlikely to use tax cuts in order to hire more workers, Increased after-tax income is not the driving factor in hiring. That role belongs to actually increasing their ability to sell products. As for the idea that “small” businesses are the primary catalysts for job growth, A 2010 study found, no systematic relation between firm size and job growth. Instead, “start-up” businesses are the primary creators of growth, not the age of other small ones.

    I think it is obvious that when we go over the cliff, Americans will know who truly is to blame. The tea party is representing the fact that they have little scruples for anything—instead desiring only power and control. I hope that when they manage to definitively shoot their own foots by pursuing the politics of greed, we will finally be over them!

  4. I don’t understand why everyone is calling this a “cliff” when these cuts will be phased in over a period of many months (so more like a gradual slope) AND won’t affect the taxes we all have to file by this coming April. This Rather, it’s affect how we file an entire year from now which can/should be able to be corrected by the time we even start thinking about our 2013 tax returns.

  5. I don’t understand why everyone is calling this a “cliff” when these cuts will be phased in over a period of many months (so more like a gradual slope) AND won’t affect the taxes we all have to file by this coming April. This Rather, it’s affect how we file an entire year from now which can/should be able to be corrected by the time we even start thinking about our 2013 tax returns.

    Absolutely… And very well said brcarthey. The specifics details of what you said would make a very informative topic of discussion.

    Several of the ‘Tea Party Clowns’ won’t be around in a few days to obstruct resolving our nations problems. There will be time to correct the error of their ways, and it will be much easier without their obstruction and ignorant, uninformed tirades.

  6. I don’t understand why everyone is calling this a “cliff” when these cuts will be phased in over a period of many months (so more like a gradual slope) AND won’t affect the taxes we all have to file by this coming April.

    You’re right, 2012 taxes are locked down. And people won’t feel paycheck pain immediately (from a recent AP story):

    — The Internal Revenue Service has delayed any increases in tax withholding that would otherwise kick in. Without a deal, the top income tax rate for single people with taxable income between about $36,000 and $88,000 would rise from 25 percent to 28 percent. But that won’t start to reduce Americans’ paychecks in early January, even if no deal is reached by then.

    Basically the IRS is keeping the withholding tables the same for now, largely because they don’t have good guidance from congress.

    However, don’t forget about the unemployed:

    — Extended unemployment benefits would end for 2 million people. The federal government’s program pays for about 32 weeks of extra benefits, on average, on top of the 26 weeks most states provide. Weekly unemployment checks average about $320 nationwide.

    I can’t find word on whether or not this will happen immediately on 1/1 or not, but for 2 million households, that’ll be a cliff.

    Then there’s the economic stagnation amongst companies working government contracts. If I was one of them, I’d hold off on any hiring or large capital purchases and would be very tight with expenses. That will definitely have an economic impact.

    It’s true: we won’t all wake up penniless on 1/2, wondering WTF just happened. But it’s bad nonetheless.

  7. I agree with brcarthy as well. We don’t have to go into panic mode just yet, but eventually we will run smack into that stone wall again.

    All the indications show there is no way for these two parties to meet in an equitable negotiation. Something will have to be resolved and I am sure the Reps don’t want to be billed as the bad guys with 2014 elections looming.
    As for the corporations…Barky is right. They are strictly out for themselves and regardless of whatever is reached, they will continue to do what is in THEIR best interests. Unemployment will be a big problem though, and that will cause severe hardship for many. Especially since businesses won’t be hiring ( using this latest excuse).
    Well, we have all created this monster. All thoise who voted in a Rep congress in a Dem administration unknowingly built this Frankenstein and now are surprised because ” It’s Alive…Alive I tell You”.

  8. I assumne the deadline will come and go without a deal. However, the President and others will be forced to deal with one another before the end of February because of the debt ceiling. As of today it appears both sides are ready to move on to a February 2013 time table and set their sites on some sort of compromise that includes increased taxes/tax reform, decreased spending as they do the dance around the debt ceiling. Incredibly, this charade will result in both sides being able to claim some convoluted victory and say they want to “lower taxes” in 2013.

    The blame that might land at the feet of Republicans in Congress will dissipate as both sides move to lower taxes from Clinton era rates and the BIG issue becomes the debt ceiling. Personally, I think everyone should return to the Clinton era rates, not just the top earners. I am in that 44-88k bracket that would pay more and I am fine with that as long as spending cuts are made. Also, keep in mind, the debt ceiling fix for Jan/Feb is not new spending; that is money already spent!

  9. Also, keep in mind, the debt ceiling fix for Jan/Feb is not new spending; that is money already spent!

    I wish we could be sure EVERYONE understood this! It’s sort of represented as by the kind of thing credit card companies do when they raise your credit limit so you’ll spend more on credit — or is that the way this works and I don’t get it?

  10. Harry Reid — Senator Majority Leader since 2007 — has largely skated free off the criticism he deserves. It’s been over 1300 days since America has a budget.

  11. Washington today typifies the old joke that Jesus could not have been born in Washington “because they couldn’t find three wise men.”

    Surely, these guys get up every morning and say: WWHKD* (What Would Hara-kiri Do?

    *Hara-kiri – the Japanese samurai custom of committing suicide by disembowelment with a sword rather than face the dishonor of surrender.

  12. Harry Reid — Senator Majority Leader since 2007 — has largely skated free off the criticism he deserves. It’s been over 1300 days since America has a budget.

    It’s kind of hard to get anything done when the Senates Republican MINORITY has used the filibuster at record setting levels to prevent bills from even being brought up for vote while the Houses Republican MAJORITY has obstructed everything the Executive has tried to accomplish… But this, too, can be seen as Harry Reid and Nancy Pelosi’s fault.

    And now, the man who hasn’t been heard from all month, Mitch McConnell has crawled out from under his rock to blame the Democrats:

  13. Steve K — Of course it is difficult to find solutions. Nobody would argue with you. My point, Reid needs to find a way to get it done. That is his job. If he can’t do it, let somebody who can, get it done.

    The tiresome argument of more taxes vs less taxes, more spending vs less spending are almost passe. The differences between Bush and Clinton rates are small. Growth is the way to solve our finacial issues. This ongoing far right vs far left tax and spend rhetoric is a loser.

    How do we spur growth? It is through inexpensive renewable energy and natural gas. As well, leverging the internet to extend massive open online courses the way Satnford and Harvard have done. We can revolutionize higher education; making it available to all income levels and anyone who is willing to _work_.

    There are so many things we can do to improve the quality of life over the next 5 to 10 to 20 years that highlight the fact that people like Harry Reid and Mitch McConnell and other ideologues are impediments. The proliferation of blogs that are focused on ideology are examples that it is far easier to create fear than to soothe it, far easier to argue for your point of view than to offen solutions.

  14. But even if we do make that education available it doesn’t mean they’ll have jobs. Consider this article from the Washington Post fact checker. One of the very telling points is this quote:

    Economist Jared Bernstein witnessed some of those lobbying efforts firsthand while serving as a member of President Obama’s economic team. “They want all the engineers they can get at the lowest price,” he said. “They say they can’t find enough talent, but what they really mean is that they can’t find enough people at the rate they want to pay.”

    After all, one must keep that pay differential between management and the peasants, even the ones with degrees and skills.

    If you want to understand the relationships between engineers and similar professionals and their bosses in many large organizations I suggest following Dilbert, especially the strips with the pointy haired boss in them. Remember, many of Adams’ strip ideas come to him from actual incidents sent in by readers.

  15. @ZUSAI Exactly. He gets it! One of my favorites has been Udacity; Then there is Coursera, edX, and Marginal Revolution University. It’s coming. Just as in medicine things are in the pipeline with DNA and stem cells and organ replacement that will make most heads spin. So much of the noise and the bickering about minor policy changes from people who are addicted to conflict will be shown for what it is; minutia and power grabbing by both sides.

    David Linden has written a book entitled, “The Compass of Pleasure”. Linden describes normal pleasure as water, food and sex. He suggests that many of the other obsessions we experience are a result of the dopamine circuit of the brain gone a bit awry. It is Linden’s opinion that our pleasures can be virtues or vices. Interestingly, brain scans demonstrate that generosity and exercise impact the same areas of the brain as gambling, alcohol and marijuana. Likewise, uncertainty and confrontation (and all things that bring it, like arguing political ideology) stimulates the medial forebrain and the dopamine circuit; the same brain center that is stimulated while waiting for the flop card when playing blackjack.

    It can make one wonder about current politics; who is helping, who is hurting and who is self-serving and doesn’t even realize it. Like the saying “you don’t know what you don’t know”.

  16. After all, one must keep that pay differential between management and the peasants, even the ones with degrees and skills.

    that happened in the computer programming sector for a while… managers were having to pay programmers management salaries to keep them in the company. In my former companies, that problem was solved by making the programmers managers. You didnt get an actual “manager” until you hit VP. that is how microsoft did things until they got too big.

    as for whom to blame…
    Obama has put forward a plan, backed by Dems in both houses, and the House minority leader has put forward a plan… all rejected by a minority of Republican crackheads that are holding our country hostage.

    The tea party will be blamed.

  17. seguro que si — (I like that)we are going off the fiscal cliff.

    But the scuttlebutt is that it will be only for one day — January 1, a federal holiday — hopefully, which will have no practical impact on anything (except our nerves and patience with these idiot-politicians). This, so that the Republican House can vote tomorrow to — technically — being able to claim that theyr “lowered” taxes (Because in theory taxes will have gone up as of midnight).

    Talk about theatrics,politics, melodramatics and just plain stupidity.

    Happy New Year, all

  18. “Talk about theatrics,politics, melodramatics and just plain stupidity.”

    Great post DDW!

  19. Down and down I go, round and round I go, in a spin loving the spin I’m in, under that old fiscal magic called Washington.
    Happy New Year, or as I say to my cat Happy Mew Year.

  20. dduck, sometimes you just make me laugh like a kid

  21. Great.

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