Over the Fiscal Cliff: Soft or Hard Landing?
by the Associated Press
December 30, 2012
President Barack Obama flew back to Washington from Hawaii after telephoning congressional leaders from his Christmas vacation perch. Once back, he set up a meeting with leaders of both parties at the White House late Friday to make a fresh attempt to find a solution before Monday night's deadline.
A look at why it's so hard for Republicans and Democrats to compromise on urgent matters of taxes and spending, and what happens if they fail to meet their deadline:
Partly by fate, partly by design, some scary fiscal forces come together at the start of 2013 unless Congress and Obama act to stop them. They include:
Some $536 billion in tax increases, touching nearly all Americans, because various federal tax cuts and breaks expire at year's end.
About $110 billion in spending cuts divided equally between the military and most other federal departments. That's about 8 percent of their annual budgets, 9 percent for the Pentagon.
Hitting the national economy with that double whammy of tax increases and spending cuts is what's called going over the "fiscal cliff." If allowed to unfold over 2013, it would lead to recession, a big jump in unemployment and financial market turmoil, economists predict.
If New Year's Day arrives without a deal, the nation shouldn't plunge onto the shoals of recession immediately. There still might be time to engineer a soft landing.
So long as lawmakers and the president appear to be working toward agreement, the tax hikes and spending cuts could mostly be held at bay for a few weeks. Then they could be repealed retroactively once a deal was reached.
The big wild card is the stock market and the nation's financial confidence: Would traders start to panic if Washington appeared unable to reach accord? Would worried consumers and businesses sharply reduce their spending? In what could be a preview, stock prices in the U.S. and Europe dropped Friday on waning hopes that Obama and key lawmakers would reach an 11th-hour compromise.
Federal Reserve Chairman Ben Bernanke has warned lawmakers that the economy is already suffering from the uncertainty and they shouldn't risk making it worse by blowing past their deadline.
If negotiations between Obama and Congress collapse completely, 2013 looks like a rocky year.
Taxes would jump $2,400 on average for families with incomes of $50,000 to $75,000, according to a study by the nonpartisan Tax Policy Center. Because consumers would get less of their paychecks to spend, businesses and jobs would suffer.
At the same time, Americans would feel cuts in government services; some federal workers would be furloughed or laid off and companies would lose government business. The nation would lose up to 3.4 million jobs, the Congressional Budget Office predicts.
"The consequences of that would be felt by everybody," Bernanke says.
Read more: http://goo.gl/C3KRt
Brace For an Avalanche of Unfunded Debt - The fiscal cliff isn't as scary as the looming deficit and debt crisis about to swamp the country
by Mort Zuckerman
December 28, 2012
All eyes have been on the clear and present danger of the fiscal cliff—understandably—but there's a sound in the mountain range that's even scarier than the cliff. It's the sound made by an avalanche, the trillions of dollars of debt that's heading our way, gathering speed and mass. For most people, it's out of earshot now, and that's the way our government prefers to play it in its financial statements. Liabilities are not set out there in accordance with the well-established norms of the private sector, where this overhang of liabilities would set off alarm bells in the markets, with boards of directors in emergency sessions.
We'll come to why that's not happening, but let's consider first why we should regard our predicaments as gravely as any private company does on the path to bankruptcy.
We are on a trajectory of cumulative fiscal deficits that cannot possibly be sustained. We have gone from being the world's largest creditor nation, with no foreign debt at the end of World War II, to the world's largest debtor, with roughly half of our public debt held by foreign lenders. Over the last four years, our national debt has grown by more than $5 trillion to over $16 trillion. We have to service that debt. The Federal Reserve is keeping rates historically low but here's the cost of paying interest on the debt for fiscal 2012: $359,796,008,919.49
What do you get for that? Nothing.
The greatest fiscal challenge to the U.S. government is not just its annual deficit but its total liabilities. Our federal balance sheet does not include the unfunded social insurance obligations of Medicare, Social Security, and the future retirement benefits of federal employees. Only in the small print of the financial statements do you get some idea of the enormous size of the unfunded commitments. Today the estimated unfunded total is more than $87 trillion, or 550 percent of our GDP. And the debt per household is more than 10 times the median family income.
The public doesn't know about these awesome liabilities because the totals appear only in actuarial estimates. As Chris Cox, former chairman of the Securities and Exchange Commission, and Bill Archer, former chairman of the House Ways and Means Committee, recently noted in the Wall Street Journal, the real annual accrued expense of Medicare and Social Security alone is $7 trillion. The government's balance sheet does not include any of these unfunded obligations but focuses on the current year deficits and the accumulated national debt. Cox and Archer reported that the annual budget deficit is only about one fifth of the more accurate figure.
If the American public saw our financial statements in the same way that public companies report their pension liabilities, it would clearly see the magnitude of danger represented by the future borrowings that these liabilities to an aging population imply—borrowing on a scale that would not only bankrupt the programs themselves but the entire federal government. And to a worrying extent, we are locked into continued escalation by the fact that social insurance programs, as well as other mandatory programs, carry payments that are in accordance with automatic formulas written into law and are not subject to an annual spending limit. Today, less than 40 percent of our budget is actually decided by Congress and the president, down from 62 percent 40 years ago.
If we continue in these irresponsible ways, an eventual reckoning cannot be avoided. The liabilities are so huge, and multiplying so fast, that there will be one unavoidable demand as the various bills come to their due date. Show us the money!
How will the bills be honored? Let's remember that 100 percent of the payroll taxes for Social Security and Medicare are spent in the year that they are collected, leaving no leftovers for the unfunded obligations. And this doesn't take into account other risks, hardly minimal, like the fact that the Federal Housing Authority confronts a $16.3 billion net deficit after its latest audit that may force a taxpayer bailout for the first time in its 78-year history. And just four years from now, in 2016, the Disability Insurance trust fund will be fully depleted.
Read more: http://goo.gl/620En
Lawmakers Leave Capitol Without a Deal
by Kerry Picket
December 30, 2012
Washington D.C. lawmakers in both chambers left the capitol on early Sunday night after negotiations to avoid the fiscal cliff fell apart in the Senate.
Senate Majority Leader Harry Reid (D – NV) said there is "still time left to reach an agreement.” In the meantime, Senate Minority Leader Mitch McConnell will continue negotiations on the phone tonight with Vice President Joe Biden.
McConnell told reporters, “There’s no single issue that remains an impossible sticking point. The sticking point appears to be the willingness and interest or frankly the courage to close the deal. I want everyone to know, I’m willing to get this done, but I need a dance partner.”
At least 50 House GOP members elected two years ago during the tea party wave are key votes to satisfy in the fiscal cliff negotiations.
Congressman Robert Andrews (D – NJ) told reporters he believes Speaker of the House John Boehner (R – OH) cannot do his job with fiscal cliff negotiations because the tea party is a “problem” for the Republican leader.
“There’s the tea party. I think it’s an aberrant strain of the Republican Party that knows what it doesn’t like; knows what it’s angry about, but doesn’t know what it wants to do,” said Andrews.
“I think [Boehner will] survive on January 3rd, sure, but on four occasions the country’s been—in these two years—the country’s been brought to the brink of real economic harm, because a small group on their side doesn’t want anything,” Andrews added.
Congressman Pat Tiberi (R – OH) shot back at Andrews remarks saying that the tea party is not giving Boehner “anymore problems than moveon.org or code pink is giving Ms. Pelosi.”
Rep. Tiberi told Breitbart News that the GOP House Conference’s rejection of Speaker Boehner’s Plan B is not hurting the caucus saying, “I think we’re a lot more united than we are divided.”
He added, “A super majority of our members supported that and there were ones that didn’t, because there were differences as to why people didn’t support it. There wasn’t one reason that united the opposition of Plan B.”
Tiberi explained further that the House GOP is putting the onus on Senator Reid:
“Here are the facts. We did our business. We passed a bill. We passed two bills. We passed one on taxes and one on sequestration. The way that School House Rock worked when I was a kid, until the health care bill that is, the House passes a bill; sends it to the Senate; the Senate either accepts it or changes it. It goes back to the House and we have a conference Committee. And the Senate refuses to do that. They’ve not taken up our bill to this minute of today. The bill that they passed is a joke.”
Congressman Tom Price (R – GA) agreed telling Breitbart News, “The Senate’s got to act. If the Senate acts, then we might be able to respond, but the Senate’s got to act.”
Price said that the conference is currently “solid” since the rejection of Plan B. “It appears the Senate can’t do anything. They can’t pass a budget—can’t pass a bill. It’s time for them to work,” he said.
The House will resume legislative business on Monday morning.
Read more: http://goo.gl/sFbJs