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Fiscal cliff: What you need to know
NEW YORK (CNNMoney) -- On Tuesday, House Speaker John Boehner all but promised an ugly fight over the debt ceiling this year unless GOP demands for spending cuts are met.
Sound familiar? The GOP took the same tact last year, leading eventually to an epic Washington fight that led to a first-ever U.S. credit downgrade and a major disruption in global markets.
The difference between then and now, however, is that a destabalizing debt ceiling fight is just one in a line of self-created dilemmas facing lawmakers this year.
That is, the fiscal cliff.
So what is the fiscal cliff? The phrase was coined by Federal Reserve Chairman Ben Bernanke to describe the simultaneous onset of tax increases and spending cuts that will be triggered on Jan. 1 unless Congress acts.
Combined the policies would take $7 trillion out of the economy over 10 years -- about $500 billion of which would occur in 2013.
Such measures include the expiration of the Bush tax cuts, middle class protection from the Alternative Minimum Tax, and more than 50 "temporary" tax breaks for individuals and businesses that have been on the books for years.
They also include nearly $1 trillion in blunt spending cuts across many areas of the federal budget. These include significant bites out of defense and non-defense spending.
A number of stimulus measures -- such as the payroll tax cut and extended unemployment benefits -- will also be ending.
What's the risk to the economy? Economists predict the United States could fall back into recession if the expiring tax cuts and impending spending cuts take effect all at once.
On the other hand, simply extending the tax policies and canceling the spending cuts could add more than $7 trillion to the country's debt over 10 years. While that would boost growth in 2013, it would hurt the economy by the end of the decade.
That's why fiscal experts hope lawmakers will take a more finessed approach to both supporting the economy and reducing deficits over time.
Can't Ben Bernanke help? Not according to Ben Bernanke.
On more than one occasion, the Fed chairman has all but begged lawmakers not to mess this one up.
"[I]f no action were to be taken, the size of the fiscal cliff is such that there's I think absolutely no chance that the Federal Reserve ... could or would have any ability whatsoever to offset ... that effect on the economy," Bernanke said recently.
So what's Congress going to do about it? Excellent question. Unfortunately there's no answer yet.
Given that it's an election year, and the balance of power between the parties is up for grabs, many observers expect lawmakers won't even begin to address the fiscal cliff in earnest until after Nov. 6.
Dealing with the fiscal policy pile-up in less than seven weeks will be a hot mess. Indeed, former Republican Sen. Alan Simpson is predicting the lame-duck session of Congress will be "chaos."
One potential outcome: A package that extends some tax cuts and postpones some spending cuts, effectively punting the real debate to the new Congress in 2013.
House Budget Chairman Paul Ryan, a leading Republican on fiscal policy, has said publicly that he would welcome that outcome if it were proposed by President Obama.
And a temporary package to buy time also seems to be the default expectation among many on Capitol Hill.
The terms of that package could very well be determined in tandem with the debate over raising the debt ceiling, which will make things messier still.
What's at stake in a debt ceiling showdown? When and how the debt ceiling is raised will matter.
Last year, the fight was ugly and protracted. The end result: a first-ever downgrade of the U.S. credit rating by Standard & Poor's, which cited political brinksmanship as the chief cause, and one of the most volatile weeks in recent history for world stock markets.
There's no reason to believe this year would be any different if the fight again becomes ugly and protracted, especially since it may get tangled up with the fiscal cliff debate, which will also weigh on investors and credit rating agencies.
SOURCE: http://money.cnn.com/2012/05/16/news/economy/fiscal-cliff/index.htm
Sound familiar? The GOP took the same tact last year, leading eventually to an epic Washington fight that led to a first-ever U.S. credit downgrade and a major disruption in global markets.
The difference between then and now, however, is that a destabalizing debt ceiling fight is just one in a line of self-created dilemmas facing lawmakers this year.
That is, the fiscal cliff.
So what is the fiscal cliff? The phrase was coined by Federal Reserve Chairman Ben Bernanke to describe the simultaneous onset of tax increases and spending cuts that will be triggered on Jan. 1 unless Congress acts.
Combined the policies would take $7 trillion out of the economy over 10 years -- about $500 billion of which would occur in 2013.
Such measures include the expiration of the Bush tax cuts, middle class protection from the Alternative Minimum Tax, and more than 50 "temporary" tax breaks for individuals and businesses that have been on the books for years.
They also include nearly $1 trillion in blunt spending cuts across many areas of the federal budget. These include significant bites out of defense and non-defense spending.
A number of stimulus measures -- such as the payroll tax cut and extended unemployment benefits -- will also be ending.
What's the risk to the economy? Economists predict the United States could fall back into recession if the expiring tax cuts and impending spending cuts take effect all at once.
On the other hand, simply extending the tax policies and canceling the spending cuts could add more than $7 trillion to the country's debt over 10 years. While that would boost growth in 2013, it would hurt the economy by the end of the decade.
That's why fiscal experts hope lawmakers will take a more finessed approach to both supporting the economy and reducing deficits over time.
Can't Ben Bernanke help? Not according to Ben Bernanke.
On more than one occasion, the Fed chairman has all but begged lawmakers not to mess this one up.
"[I]f no action were to be taken, the size of the fiscal cliff is such that there's I think absolutely no chance that the Federal Reserve ... could or would have any ability whatsoever to offset ... that effect on the economy," Bernanke said recently.
So what's Congress going to do about it? Excellent question. Unfortunately there's no answer yet.
Given that it's an election year, and the balance of power between the parties is up for grabs, many observers expect lawmakers won't even begin to address the fiscal cliff in earnest until after Nov. 6.
Dealing with the fiscal policy pile-up in less than seven weeks will be a hot mess. Indeed, former Republican Sen. Alan Simpson is predicting the lame-duck session of Congress will be "chaos."
One potential outcome: A package that extends some tax cuts and postpones some spending cuts, effectively punting the real debate to the new Congress in 2013.
House Budget Chairman Paul Ryan, a leading Republican on fiscal policy, has said publicly that he would welcome that outcome if it were proposed by President Obama.
And a temporary package to buy time also seems to be the default expectation among many on Capitol Hill.
The terms of that package could very well be determined in tandem with the debate over raising the debt ceiling, which will make things messier still.
What's at stake in a debt ceiling showdown? When and how the debt ceiling is raised will matter.
Last year, the fight was ugly and protracted. The end result: a first-ever downgrade of the U.S. credit rating by Standard & Poor's, which cited political brinksmanship as the chief cause, and one of the most volatile weeks in recent history for world stock markets.
There's no reason to believe this year would be any different if the fight again becomes ugly and protracted, especially since it may get tangled up with the fiscal cliff debate, which will also weigh on investors and credit rating agencies.
SOURCE: http://money.cnn.com/2012/05/16/news/economy/fiscal-cliff/index.htm
Agreed 100%....
I agree.
I'd add that we need to cut the military budget ( i.e. stop fighting overseas) and increase taxes on the top 1%.
Congress should have to live by the same laws as the rest of us.
They should not have carte blanche on the tax payers expense.
If there is no universal health care, then why do they have health care that we do not ? Let them buy insurance, they can afford it.
No more insider info so they can make big bucks on Wall street.
And no more lobbies.
If they can't reach a budget, do their job, then they should be fired, just like we would be.
Someone needs to remind those bozos that they are supposed to be working for US, the people.
whew, I'm raring to go this morning~
I'd add that we need to cut the military budget ( i.e. stop fighting overseas) and increase taxes on the top 1%.
Congress should have to live by the same laws as the rest of us.
They should not have carte blanche on the tax payers expense.
If there is no universal health care, then why do they have health care that we do not ? Let them buy insurance, they can afford it.
No more insider info so they can make big bucks on Wall street.
And no more lobbies.
If they can't reach a budget, do their job, then they should be fired, just like we would be.
Someone needs to remind those bozos that they are supposed to be working for US, the people.
whew, I'm raring to go this morning~
The "Congress of No".... How can the President really make these people play ball?
I agree with the President when he said anything similar to what happened in the past is unacceptable. But he's handcuffed.... there's not a whole bunch he can do by himself. Somewhere between party line affiliations and greed lies the meat of the subject and there are too many "free minds" that are looking out for themselves and nobody else.
I rest assured that most politicians don't give a rats a$$ about America these days. I think the majority of today's politicians are so far away from the lower and middle class that it would be impossible for them to understand what is needed to be done.
I am understanding that there are no easy answers, but I don't see anyone in DC really doing anything about the problems other than arguing or stalemating on the subject.
We've got to start trimming the fat with spending, and we need to start spending domestically.... we cannot continue to bail everyone out while we are taking on water at an accelerated pace. This is where party affiliations comes in, and nobody is willing to compromise. Worse than that, compromise means making deals and the majority of America is sick of the back room deals that always end up costing us down the line....(Some of the crap we have today is because of bad policy and bad past spending.... yet we never learn.)
"Quick fixes" and "political band aides" are also to blame. We tend to put a new paint job on a lot of things and then quit paying it attention until the paint starts to flake off again....
All of this is frustrating, and this cliff just keeps getting higher. The pied piper keeps playing and the line behind him keeps getting longer.
I agree with the President when he said anything similar to what happened in the past is unacceptable. But he's handcuffed.... there's not a whole bunch he can do by himself. Somewhere between party line affiliations and greed lies the meat of the subject and there are too many "free minds" that are looking out for themselves and nobody else.
I rest assured that most politicians don't give a rats a$$ about America these days. I think the majority of today's politicians are so far away from the lower and middle class that it would be impossible for them to understand what is needed to be done.
I am understanding that there are no easy answers, but I don't see anyone in DC really doing anything about the problems other than arguing or stalemating on the subject.
We've got to start trimming the fat with spending, and we need to start spending domestically.... we cannot continue to bail everyone out while we are taking on water at an accelerated pace. This is where party affiliations comes in, and nobody is willing to compromise. Worse than that, compromise means making deals and the majority of America is sick of the back room deals that always end up costing us down the line....(Some of the crap we have today is because of bad policy and bad past spending.... yet we never learn.)
"Quick fixes" and "political band aides" are also to blame. We tend to put a new paint job on a lot of things and then quit paying it attention until the paint starts to flake off again....
All of this is frustrating, and this cliff just keeps getting higher. The pied piper keeps playing and the line behind him keeps getting longer.
the link is.
http://www.washingtonpost.com/politics/obama-warns-republicans-over-debt-ceiling-fight/2012/05/16/gIQAZcHBUU_story.html?wpisrc=nl_headlines
Since my copy and paste turned out a mess. sorry
http://www.washingtonpost.com/politics/obama-warns-republicans-over-debt-ceiling-fight/2012/05/16/gIQAZcHBUU_story.html?wpisrc=nl_headlines
Since my copy and paste turned out a mess. sorry
Here is the response the WH gave.
President Obama warned congressional leaders on Wednesday that he would not tolerate a replay of the bitter debt-ceiling fight of last summer that nearly put the United States in default and led to the nation’s first credit-rating downgrade.
During lunch at the White House with top leaders of the House and Senate, Obama called the political deadlock last year “not acceptable” and emphasized that he expects a “serious bipartisan approach” to tackling the budget and the federal deficit this year, White House press secretary Jay Carney said.
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Corrections?
Personal Post
Video
House Speaker John Boehner renewed his demand for big spending cuts before the debt limit is raised again at year's end.
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Obama stressed the need to “avoid fighting old political fights,” Carney told reporters after the meeting. “It’s simply not acceptable to hold the American and global economy hostage to one party’s political ideology. It’s the responsibility of Congress to ensure that the United States of America pays its bills, maintains its creditworthiness.”
The president’s warning came a day after House Speaker John A. Boehner (R-Ohio) threatened again to block an increase in the federal debt ceiling by early next year — when the debt is expected to reach its $16.4 trillion limit — without significant new cuts in spending.
Boehner’s office said Wednesday that the speaker told Obama that he would not allow “a debt-ceiling increase without doing something serious about the debt.”
Senate Majority Leader Harry M. Reid (D-Nev.), Senate Minority Leader Mitch McConnell (R-Ky.) and House Minority Leader Nancy Pelosi (D-Calif.) also attended the meeting.
Republicans agreed last summer to raise the debt ceiling only after Obama dropped demands to include new revenue in a deficit-reduction package. That debt-limit agreement came with about $1 trillion in immediate spending cuts, and a round of $1.2 trillion in mandatory reductions that Congress put off until January.
The dispute led the Wall Street credit rating firm Standard & Poor’s to downgrade the U.S. bond rating from AAA to AA+.
The debt limit isn’t the only fiscal policy that lawmakers will tackle shortly after the November elections. Also in January, the president and Congress will face the expiration of a host of tax cuts that benefit every American household.
Unless Congress agrees on an alternative deficit-reduction strategy, the policies threaten to deliver a fiscal shock that could throw the nation back into a recession.
Carney blamed Republican “intransigence” for threatening to derail the economy, stressing that the White House expects Congress to pursue a “balanced approach” to deficit reduction that includes a mix of spending cuts and tax increases on the wealthy.
During the lunch meeting, Obama also urged Congress to support a handful of proposals aimed at boosting small businesses and allowing homeowners to refinance at lower interest rates.
President Obama warned congressional leaders on Wednesday that he would not tolerate a replay of the bitter debt-ceiling fight of last summer that nearly put the United States in default and led to the nation’s first credit-rating downgrade.
During lunch at the White House with top leaders of the House and Senate, Obama called the political deadlock last year “not acceptable” and emphasized that he expects a “serious bipartisan approach” to tackling the budget and the federal deficit this year, White House press secretary Jay Carney said.
3468
Comments
Weigh In
Corrections?
Personal Post
Video
House Speaker John Boehner renewed his demand for big spending cuts before the debt limit is raised again at year's end.
More from PostPolitics
Why we’re headed for debt fight redux
Aaron Blake MAY 16
THE FIX | There’s plenty of reason to believe that House Speaker John Boehner isn’t just blowing smoke about another debt limit showdown.
Is Obama really responsible for a $5 trillion increase in the debt?
Glenn Kessler MAY 16
FACT CHECKER | The national debt is simply a matter of numbers, but the blame game is much more complicated. Let’s take a look.
Christie, Booker mock themselves
Rachel Weiner MAY 16
THE FIX | Chris Christie and Cory Booker have managed to work together, at least to produce a parody video.
.
Obama stressed the need to “avoid fighting old political fights,” Carney told reporters after the meeting. “It’s simply not acceptable to hold the American and global economy hostage to one party’s political ideology. It’s the responsibility of Congress to ensure that the United States of America pays its bills, maintains its creditworthiness.”
The president’s warning came a day after House Speaker John A. Boehner (R-Ohio) threatened again to block an increase in the federal debt ceiling by early next year — when the debt is expected to reach its $16.4 trillion limit — without significant new cuts in spending.
Boehner’s office said Wednesday that the speaker told Obama that he would not allow “a debt-ceiling increase without doing something serious about the debt.”
Senate Majority Leader Harry M. Reid (D-Nev.), Senate Minority Leader Mitch McConnell (R-Ky.) and House Minority Leader Nancy Pelosi (D-Calif.) also attended the meeting.
Republicans agreed last summer to raise the debt ceiling only after Obama dropped demands to include new revenue in a deficit-reduction package. That debt-limit agreement came with about $1 trillion in immediate spending cuts, and a round of $1.2 trillion in mandatory reductions that Congress put off until January.
The dispute led the Wall Street credit rating firm Standard & Poor’s to downgrade the U.S. bond rating from AAA to AA+.
The debt limit isn’t the only fiscal policy that lawmakers will tackle shortly after the November elections. Also in January, the president and Congress will face the expiration of a host of tax cuts that benefit every American household.
Unless Congress agrees on an alternative deficit-reduction strategy, the policies threaten to deliver a fiscal shock that could throw the nation back into a recession.
Carney blamed Republican “intransigence” for threatening to derail the economy, stressing that the White House expects Congress to pursue a “balanced approach” to deficit reduction that includes a mix of spending cuts and tax increases on the wealthy.
During the lunch meeting, Obama also urged Congress to support a handful of proposals aimed at boosting small businesses and allowing homeowners to refinance at lower interest rates.
Politics, is what this is, its an election year so lets stir the pot and pander to the base to get things revved up early as we can.
The republicans refer to the bush tax cuts as a tax increase. These tax increases really have their panties in a wad. Always has. They need to end, and the last time they were held hostage about the unemployment extensions.
The downgrade happened because no one could compromise on anything. The republicans are screaming cut cut cut and the dems want some revenue.
Grover Norquist is standing in the background going "No Revenue", otherwise a compromise could have been cut and we would not have been downgraded.
Remember the so called team they put together to come to some conclusions? Equal dems, equal pubs and it went the same way.
Do we really expect it to be any different? I dont think anyone does.
Same **** different day.
Tax reform may be an out, but do you really think anyone will cooperate there either? Nope.
The republicans refer to the bush tax cuts as a tax increase. These tax increases really have their panties in a wad. Always has. They need to end, and the last time they were held hostage about the unemployment extensions.
The downgrade happened because no one could compromise on anything. The republicans are screaming cut cut cut and the dems want some revenue.
Grover Norquist is standing in the background going "No Revenue", otherwise a compromise could have been cut and we would not have been downgraded.
Remember the so called team they put together to come to some conclusions? Equal dems, equal pubs and it went the same way.
Do we really expect it to be any different? I dont think anyone does.
Same **** different day.
Tax reform may be an out, but do you really think anyone will cooperate there either? Nope.
Sounds like a DANDY time for Flat-Tax to be implemented.
How about everyone pitching in to get us out of this mess. What a novel concept...
Ahhh... silly me. Flat-tax actually makes sense and would work. MUCH too difficult a concept for DC to assimilate and do anything about.
Morons.
How about everyone pitching in to get us out of this mess. What a novel concept...
Ahhh... silly me. Flat-tax actually makes sense and would work. MUCH too difficult a concept for DC to assimilate and do anything about.
Morons.
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