Fiscal Cliff Talks Intensify – Cliff Notes

Fiscal Cliff Talks Intensify

By Evelyn Robinson
With America’s own financial version of the apocalypse now 21 days out, discussions are beginning to intensify. Despite the dire outcome for the nation, political leaders continue to bicker and grandstand instead of discussing solid ideas for the way forward. With 21 days to go talks will continue, but no sign of a real and lasting deal for America’s future seems to be on the horizon at the moment. This is the public face of negotiations, but are changes underway behind closed doors?
The Fiscal Cliff
What is the Fiscal Cliff - Cliffs Notes

What is the Fiscal Cliff – Cliffs Notes

The fiscal cliff scenario is due to take affect at the end of the year. The current debt ceiling and financial budget plan will expire on Dec 31. If this happens, all tax cuts will be cancelled and there will be massive, automatic spending cuts in all departments except defense. This also means that many government contracts will not be honored, infrastructure and building projects will be cancelled or put on hold, and many government employees will no longer receive their wages. It is expected that the fiscal cliff will usher in an economic contraction of approximately $600 billion next year.

For those in government, there are two ways to avoid the fiscal cliff. The first way is to raise more money to pay for spending. The second way is to cut spending, so that no more money needs to be raised. A compromise would involve both. Since the fiscal cliff became a distinct possibility, the GOP have favored the latter, while Democrats want the former. Finding a compromise has proved impossible so far.
The Obama Gambit
President Obama has called for political leaders to push harder on solving the fiscal cliff crisis. This included a face-to-face meeting with House Speaker, John Boehner on Sunday. One compromise being offered by Obama and the Democrats is for tax rates for middle class Americans to remain at the cut level, but for higher earners to be taxed back at the higher pre-Bush rate. Obama has also called to be granted the authority to adjust the debt ceiling himself in order to keep the government solvent. Apparently, his deal also includes some cuts to healthcare programs like Medicaid.
The Republican Stance
The bad news for Boehner and the rest of the GOP is that polls are leaning toward blaming them if America falls off the fiscal cliff. From the Republican point of view, Obama is an immovable object who talked of concessions prior to the election, but is now hardening his stance. Many Republicans are willing to compromise on the tax cuts for the wealthy, so long as businesses filed as single persons are afforded some kind of protection from increased taxation.
Boehner has stated that the Republican position has not altered in the past month. They would like to see more spending cuts on all areas of government spending except on defense. Reducing the cost of Medicare is a major plank of their policy, while many within the GOP still back the Ryan Plan. One thing both parties agree on is examining various tax breaks next year. Many Republicans will, however, resist the idea of allowing Obama to have borrowing authority. The hardest part for Boehner might not be a compromise with the President, but selling the policy to both elected members of the two houses and also grassroots members.
An Uncertain Future
Most reports on the effects of the fiscal cliff have focused on stock markets, government spending and national economics. Certainly, nearing the fiscal cliff has caused stock markets to be muted. This is not just in America, but in Asia too and other parts of the world. Resolution of the problem in one way or another will help the markets know how to act. While market fear has heightened, one unexpected pay off for ordinary Americans has been the near record lows of the fixed rate mortgage market seen since late November. Regardless of what happens to these mortgage values, the fiscal cliff will impact severely on family incomes and consumer spending. One thing is certain, the fiscal cliff is going to remain the main economic talking point until settled, there will be blame and counter blame, but there will be those who benefit and those who are hit hard. What happens to whom is down to the politicians now.


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