How will the looming fiscal cliff impact the US economy and job market?

[Astronuc]

Inching closer to an agreement - Progress seen in last-minute 'fiscal cliff' talks
http://news.yahoo.com/progress-seen-last-minute-fiscal-cliff-talks-141404187--finance.html

WASHINGTON (AP) — Working against a midnight deadline, negotiators for the White House and congressional Republicans narrowed their differences Monday on legislation to avert across-the-board tax increases.

Congressional officials familiar with talks between Vice President Joe Biden and Senate Republican leader Mitch McConnell said one major remaining sticking point was whether to postpone spending cuts that are scheduled to begin on Jan 1.

Republicans want to replace across-the-board reductions with targeted cuts elsewhere in the budget, and the White House and Democrats were resisting.

. . . .

They have to cut expenditures in line with revenue. They need to stop pretending about optimistic growth.

 

[mheslep]

Inching closer to an agreement - Progress seen in last-minute 'fiscal cliff' talks
http://news.yahoo.com/progress-seen-last-minute-fiscal-cliff-talks-141404187--finance.html
They have to cut expenditures in line with revenue. They need to stop pretending about optimistic growth.

Clearly there will be no new spending cuts by January under this President, nor are the pending small cuts in current law secure.

But he [McConnell] claimed the White House called in the morning "demanding" to avert the automatic spending cuts, $110 billion of which is set to take effect in 2013.

http://www.foxnews.com/politics/201...l-deal-as-ball-drop-set-to-ring-in-tax-hikes/

To force the issue, would you favor not raising the debt limit?

 

[Astronuc]

Clearly there will be no new spending cuts by January under this President, nor are the pending small cuts in current law secure.


http://www.foxnews.com/politics/201...l-deal-as-ball-drop-set-to-ring-in-tax-hikes/

To force the issue, would you favor not raising the debt limit?

If the plan is to keep running deficits - they have to raise the debt ceiling. It appears the deficit spending is the plan.

2012 Projected Deficit: $1.33 trillion, 8.5 percent of GDP; 2013 Projected Deficit: $901 billion, 5.5 percent of GDP; 2018 Projected Deficit: $575 billion, 2.7 percent of GDP; 2022 Projected Deficit: $704 billion, 2.8 percent of GDP.

That's ridiculous, IMO.

FY2013 started with a projected ~$900 billion deficit, but Congress just approved a $60 billion emergency supplemental bill to cover the damage done by Sandy. And if we have another similar event this year?
http://www.whitehouse.gov/omb/overview
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/tables.pdf
http://www.cbo.gov/publication/43083 - back in March 2012.

I'd go with $3 cut in expenditures for every $1 of tax increase.

Actually, I think Tom Harkin has it right -

“No deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up,” Democratic Senator Tom Harkin of Iowa said in the chamber. “So we go back to the tax system that we had under Bill Clinton. I ask: What’s so bad about that?”

http://news.yahoo.com/blogs/ticket/...cconnell-pursue-deal-150143841--politics.html

If they can't eliminate the deficit, then at some point the US government will have to default on it's debt. The deficits are currently exceeding the typical annual growth rate of the US economy.

Apparently the House will wait until Wednesday to vote on whatever the Senate produces, i.e., after the expiration of the Bush tax cuts. That way, they can claim that they reduced the tax rates, which their inaction had allowed to increase anyway.

The time to stop the nonsense is overdue - by a several decades.

 

[mheslep]

It appears to me that this (on which I agree)

...
I'd go with $3 cut in expenditures for every $1 of tax increase.

is contradictory with this

Actually, I think Tom Harkin has it right -

“No deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up,” Democratic Senator Tom Harkin of Iowa said in the chamber. “So we go back to the tax system that we had under Bill Clinton. I ask: What’s so bad about that?”

There are no cuts to expenditures with a do nothing, default back-to-Clinton-rates, no-plan plan as Harkin calls for. Therefore after an initial one year decrease, the deficit would continue to increase.

The time to stop the nonsense is overdue - by a several decades.

Is it? Supporting Harkin's proposal is more of the same.

 

[Astronuc]

With respect to Harkin's comment, I was referring to the tax increases and mandatory cuts, in the absence of an agreement. I was not referring to Harkin's proposal or any specifics.

I'd prefer a sensible agreement on tax increases and expenditure reduction - and entitlement (SS, Medicare, Medicaid) reform.

I'd prefer to see the patriotic millions/billions hiring people or supporting entrepreneurs rather than simply sending their money in the form of taxes to Washington DC.

As of now, apparently the plan is to add another ~$7 trillion to the debt over the next decade. How would investor react to a company where the management indicated that they were planning to operate this way over the next 10 years. And if the interest rates increase? It is not in the long term benefit of the country to continue the way it has for the last 12 years.

 

[lisab]

Looks like they could not do their jobs. Totally unnecessary and unwelcome drama.

I'm disappointed in my government. What a bunch of yahoos. Are they thinking it's a long time until the next election cycle, so they thought they'll be able to get away with this with no consequences?

 

[mheslep]

Does the use of the plural 'they' mean everyone but the President garners your disappointment? He has no next election, ever.

If so, I see things the other way 'round.
http://dailycaller.com/2012/12/29/e...ma-for-lack-of-fiscal-cliff-leadership-video/

 

[Astronuc]

Analysis: Fiscal Cliff Breach Makes Sense for Pols
http://news.yahoo.com/analysis-fiscal-cliff-breach-makes-sense-pols-223724203.html

Going over the "fiscal cliff" may seem irresponsible and self-destructive for the nation as a whole, but it's a politically logical, self-preserving step for many individual lawmakers.

In other words, Politics as usual in Washington DC.


And the administration needs to agree to cuts in expenditures.

 

[lisab]

Does the use of the plural 'they' mean everyone but the President garners your disappointment? He has no next election, ever.

If so, I see things the other way 'round.
http://dailycaller.com/2012/12/29/e...ma-for-lack-of-fiscal-cliff-leadership-video/

Is your post in response to mine? If so...really? You see only *one side* playing politics here?! Wow that's absurd, IMO. Both sides are playing.

Re your blog link: Krauthammer has become a partisan hack of late. I used to read him and I respected him, at least. Not so much anymore.

 

[rootX]

Is fiscal cliff an actual issue of imminent concern? I believe when elections ended, the US media ran out of ideas to attract viewers and hence hyped the fiscal cliff issue. The consequences of not meeting the deadline seemed to be blown out of proportion.

 

[Astronuc]

Senate passes 'fiscal cliff' deal, House up next
http://news.yahoo.com/blogs/ticket/senate-passes--fiscal-cliff--deal--house-up-next-082813845.html

With 2013 just over two hours old, the Senate voted 89-8 on Tuesday to approve a last-minute deal to avert income tax hikes on all but the richest Americans and stall painful spending cuts as part of a hard-fought compromise to avoid the economically toxic “fiscal cliff.”

The country had already technically tumbled over the cliff by the time the gavel came down on the vote at 2:07 a.m.. The House of Representatives was not due to return to work to take up the measure until midday on Tuesday. But with financial markets closed for New Year's Day, quick action by lawmakers would likely limit the economic damage.

. . . .
Compromises on tax rates

Under the compromise arrangement, taxes would rise on income above $400,000 for individuals and $450,000 for households, while exemptions and deductions the wealthiest Americans use to reduce their tax bill would face new limits. The accord would also raise the taxes paid on large inheritances from 35% to 40% for estates over $5 million. And it would extend by one year unemployment benefits for some two million Americans. It would also prevent cuts in payments to doctors who treat Medicare patients and spare tens of millions of Americans who otherwise would have been hit with the Alternative Minimum Tax.

The middle class will still see its taxes go up: The final deal did not include an extension of the payroll tax holiday. And the overall package will deepen the deficit by hundreds of billions of dollars by extending the overwhelming majority of the Bush tax cuts.
. . . .

Efforts to modify the first installment of $1.2 trillion in cuts to domestic and defense programs over 10 years -- the other portion of the “fiscal cliff,” known as sequestration -- had proved a sticking point late in the game. . . . .

The government still has to address the deficit and cumulative debt.


'Fiscal cliff' deal to block pay hike for Congress
http://news.yahoo.com/fiscal-cliff-deal-block-pay-hike-congress-041813369--politics.html

Analysis: Economy would dodge bullet for now under fiscal deal
http://news.yahoo.com/analysis-economy-dodge-bullet-now-under-fiscal-deal-075151243--business.html

Senate Passes Legislation to Allow Taxes on Affluent to Rise
http://www.nytimes.com/2013/01/02/us/politics/senate-tax-deal-fiscal-cliff.html

NY Times - News Analysis: Grand Deals Give Way to Legislative Quick Fixes
http://www.nytimes.com/2013/01/01/u...ains-give-way-to-legislative-quick-fixes.html

China commentaries demand U.S. responsibility on "fiscal cliff
http://news.yahoo.com/china-commentaries-demand-u-responsibility-fiscal-cliff-014316992--business.html

 

[SixNein]

Senate passes 'fiscal cliff' deal, House up next
http://news.yahoo.com/blogs/ticket/senate-passes--fiscal-cliff--deal--house-up-next-082813845.html
The government still has to address the deficit and cumulative debt.'Fiscal cliff' deal to block pay hike for Congress
http://news.yahoo.com/fiscal-cliff-deal-block-pay-hike-congress-041813369--politics.html

Analysis: Economy would dodge bullet for now under fiscal deal
http://news.yahoo.com/analysis-economy-dodge-bullet-now-under-fiscal-deal-075151243--business.html

Senate Passes Legislation to Allow Taxes on Affluent to Rise
http://www.nytimes.com/2013/01/02/us/politics/senate-tax-deal-fiscal-cliff.html

NY Times - News Analysis: Grand Deals Give Way to Legislative Quick Fixes
http://www.nytimes.com/2013/01/01/u...ains-give-way-to-legislative-quick-fixes.html

China commentaries demand U.S. responsibility on "fiscal cliff
http://news.yahoo.com/china-commentaries-demand-u-responsibility-fiscal-cliff-014316992--business.html

Notice what the republicans fought so hard to protect...

*Hurray* now we get to argue about the debt limit and if we should drive the country over that particular section of the road. This self destruction politics is working well...

 

[Alfi]

I wonder how much money would not be spent if ...


–Cut the number aircraft carriers in the fleet from 11 to 6 and reduce carrier air wings appropriately, which would save operations and support (O&S) costs and long delay the need to buy expensive new ships and aircraft.

–Cut Army division-equivalents from 10 to 5 (similar savings in O&S and new equipment).

–Cut Marine divisions from 3 to 1 (similar O&S and procurement savings).

–Cancel the F-35 for the Navy, Marines, and Air Force and instead upgrade current model fighters with new electronics.

–Cancel purchases of Virginia-class submarines, but provide some modest funding to keep the submarine industrial base warm.

–Eliminate costly dedicated military housing, health care and commissary systems and buy such items from the existing civilian market.

–Abandon the unnecessary American Empire, eliminate all U.S. military bases overseas, and decommission the forces stationed there.


http://consortiumnews.com/2012/12/29/bending-to-military-contractors/

 

[mheslep]

I wonder how much money would not be spent if ...


–Cut the number aircraft carriers in the fleet from 11 to 6 and reduce carrier air wings appropriately, which would save operations and support (O&S) costs and long delay the need to buy expensive new ships and aircraft.

–Cut Army division-equivalents from 10 to 5 (similar savings in O&S and new equipment).

–Cut Marine divisions from 3 to 1 (similar O&S and procurement savings).

–Cancel the F-35 for the Navy, Marines, and Air Force and instead upgrade current model fighters with new electronics.

–Cancel purchases of Virginia-class submarines, but provide some modest funding to keep the submarine industrial base warm.

–Eliminate costly dedicated military housing, health care and commissary systems and buy such items from the existing civilian market.

–Abandon the unnecessary American Empire, eliminate all U.S. military bases overseas, and decommission the forces stationed there.


http://consortiumnews.com/2012/12/29/bending-to-military-contractors/

Those very detailed cuts would have consequences. Any idea what they might be? That is, what threats do you imagine the US military should defend against, and would those cuts impair the ability to do so?

 

[mheslep]

Is your post in response to mine? If so...really? You see only *one side* playing politics here?! Wow that's absurd, IMO. Both sides are playing. ...

That's not remotely what I said, that "only one side" is playing politics. I'm disappointed in the President's leadership on the subject, as also indicated by both Newsweek's Evan Thomas and Krauthammer.

I can not imagine you really think I said only one side is playing politics either, but chose none the less to throw up a straw man in order to continue the narrative that criticism of the President's lack of action on this subject is absurd.

 

[Astronuc]

House Republican anger clouds fate of ‘fiscal cliff’ deal
http://news.yahoo.com/blogs/ticket/...st-fiscal-cliff-deal-161832950--politics.html

A hard-fought bipartisan compromise passed in the Senate early Tuesday to spare all but the richest Americans from painful income-tax hikes teetered on the edge of collapse as angry House Republicans denounced its lack of spending cuts.
. . . .

I would agree that the spending cuts are insufficient.

A report released by the Congressional Budget Office Tuesday complicated matters further still. The nonpartisan group "scored" the Biden-McConnell compromise as likely adding nearly $4 trillion to the federal deficit over 10 years, hardening opposition among many Republicans seeking further spending cuts.
. . . .

That's better than a projected $7 trillion from last year, but still problematic.

I imagine in 10 years time, with $20 trillion in debt, it won't be the 'right time' to raise taxes and reduce expenditures. The 'right time' to do this voluntarily never comes - so it just seems to keep going until - it doesn't.


And it's a bipartisan problem, as well as a national problem.

 

[OmCheeto]

That's not remotely what I said, that "only one side" is playing politics. I'm disappointed in the President's leadership on the subject, as also indicated by both Newsweek's Evan Thomas and Krauthammer.

I can not imagine you really think I said only one side is playing politics either, but chose none the less to throw up a straw man in order to continue the narrative that criticism of the President's lack of action on this subject is absurd.

The "President's leadership"?

https://sphotos-b.xx.fbcdn.net/hphotos-ash3/c98.0.403.403/p403x403/538511_451248158273492_106679906_n.jpg

I also heard today that the Tea Party, instructed to destroy President Obama, has inadvertently begun the dismantling the Republican Party.

Might just be Facebook meme rumour, but I thought it was ironic also. (Those FB people told me it was ironic. I believed them.)

 

[AlephZero]

I'm inclined to agree that one side is playing politics (and winning). The other side are playing at being politicians.

This could run for a while - a BBC news report pointed out that the current Congress is due to end on Thursday, which effectively presses the restart button on the whole negotiation process.

 

[russ_watters]

Perhaps the GOP figures they will have another, better shot at spending cuts in a few weeks when Obama needs the debt ceiling raised again. Similar to:

When the previous fiscal year ended on September 30, 1995, the president and the Republican-controlled Congress had not passed a budget. A majority of Congress members and the House Speaker, Newt Gingrich, had promised to slow the rate of government spending; however, this conflicted with the president's objectives for education, the environment, Medicare, and public health.[1] According to Clinton's autobiography, their differences resulted from differing estimates of economic growth, medical inflation, and anticipated revenues.[2]

When Clinton refused to cut the budget in the way Republicans wanted, Gingrich threatened to refuse to raise the debt limit, which would have caused the United States Treasury to suspend funding other portions of the government to avoid putting the country in default.[2]

http://en.wikipedia.org/wiki/United_States_federal_government_shutdown_of_1995_and_1996#Background

 

[Astronuc]

House passes fiscal cliff deal, tamps down GOP revolt
http://news.yahoo.com/blogs/ticket/...st-fiscal-cliff-deal-161832950--politics.html

The House of Representatives late Tuesday easily approved emergency bipartisan legislation sparing all but a sliver of America’s richest from sharp income tax hikes -- while setting up another “fiscal cliff” confrontation in a matter of weeks.

Lawmakers voted 257-167 to send the compromise to President Barack Obama to sign into law. Eighty-five Republicans and 172 Democrats backed the bill, which had sailed through the Senate by a lopsided 89-8 margin shortly after 2 a.m. Opposition comprised 151 Republicans and 16 Democrats.

. . . .

In a few weeks, the government has to reach agreement on the debt ceiling, which ostensibly be tied to further cuts in expenditures.

Anaylsis from Xinhua: U.S. "kicks can" towards "fiscal abyss"
http://news.yahoo.com/u-kicks-towards-fiscal-abyss-xinhua-085614675--business.html

 

[jtbell]

Monday morning will be interesting. I imagine the equities markets will pop up with a deal, and tank if there is no deal.

The S&P index was up 1.7% on Monday. It went up another 2.5% today, after the House passed the deal last night. I'm sure the euphoria will dissipate soon, but it's fun to watch on a gray afternoon.

 

[Feodalherren]

We should just have walked off the cliff. I'm sick and tired of this astronomical debt that we're building.

 

[Astronuc]

Winners and Losers from a Fiscal-Cliff Deal
http://news.yahoo.com/winners-losers-fiscal-cliff-deal-231507391--politics.html

"Fiscal cliff" deal looks so-so for U.S. businesses on taxes
http://news.yahoo.com/fiscal-cliff-deal-looks-u-businesses-taxes-043058870--finance.html

WASHINGTON (Reuters) - The "fiscal cliff" deal that slowly, painfully took shape in the U.S. Congress in recent days fulfills some of corporate America's tax policy goals, but leaves others unmet, including a big one - meaningful deficit and debt reduction.
. . . .

Some big-ticket items were part of that, including an extension through 2013 of the widely claimed research and development tax credit. Also included was a provision allowing businesses to write off immediately half the value of new investments, known as 50 percent bonus depreciation.

The legislation also includes a wide range of other favors for select industries, including tax breaks for railroad track maintenance, restaurant and retail store improvements, auto racetracks, film and television production, and rum production in Puerto Rico and the U.S. Virgin Islands.

WIND POWER BACKED

Numerous tax breaks for wind power production and other alternative energy technologies were also included.

"This agreement might not be seen as perfect by everyone, but it gives American consumers and businesses the certainty they need to put worries over this issue behind them," said Matthew Shay, head of the National Retail Federation.
. . . .
The compromise also makes no mention of setting up a new method of taxing profits made offshore and brought into the country by U.S. multinational corporations. Many such businesses have been pushing for a "territorial system" that would let them bring foreign-earned profits home with little or no taxation.

Obama begins second term facing pessimistic public: Poll
http://news.yahoo.com/blogs/ticket/...g-pessimistic-public-132253142--election.html
By Rachel Rose Hartman, Political Reporter, Yahoo! News

As President Barack Obama heads into his second term, he faces a pessimistic and weary public, according to a USA Today/Gallup poll released late Tuesday.

The percentage of Americans satisfied with the direction of the country stands at a paltry 23 percent in a poll taken Dec. 14-17. By a margin of 50 to 47 percent, respondents said the country's best years are over.

Fifty percent of respondents said it is somewhat or very unlikely that today's youth will have a better life than their parents.

That pessimism and negativity extends to the president, according to the poll.

When respondents were asked to choose adjectives to describe their feelings about the president's re-election, the poll showed the excitement and pride many Americans felt about the president's first term has diminished.

Sixty-seven percent of respondents in November 2008 said they felt optimistic about the president's election and the same percentage said it made them feel proud. Last month those numbers fell to 52 percent for optimistic and 48 percent for proud. Forty-three percent of Americans surveyed also said they feel pessimistic about the president's re-election and 36 percent said it made them feel afraid—both increases from 2008.

Boehner Meeting With Angry Sandy Republicans This Afternoon
http://abcnews.go.com/blogs/politic...-with-angry-sandy-republicans-this-afternoon/

Although members from both sides of the aisle representing the region struck by Superstorm Sandy lashed out at House Speaker John Boehner on the House floor today, Boehner will meet at 3:00 p.m. this afternoon with Republican members from the area to tell them that his first priority in the next session of Congress is a resolution to the imbroglio.
. . . .
The 113th session of Congress begins Thursday at 12:00 p.m., when Boehner loses a little of his majority after Democrats gained 10 seats in the House in November.
. . . .
When members reconvene Jan. 14, they’re only in session for three days before taking another break leading up to the Jan. 21 inauguration. Then the House is scheduled to be back in session Jan. 21 until Jan. 23, before taking the rest of the month off.

Gov. Chris Christie to Congress: Shame On You
http://abcnews.go.com/Politics/video/gov-chris-christie-congress-shame-18115183

Christy and Cuomo, governors of NJ and NY, respectively, are upset about the delay in getting the Sandy emergency relief federal funding bill through the House, after the Senate approved it.

 

[lisab]

That's not remotely what I said, that "only one side" is playing politics. I'm disappointed in the President's leadership on the subject, as also indicated by both Newsweek's Evan Thomas and Krauthammer.

I can not imagine you really think I said only one side is playing politics either, but chose none the less to throw up a straw man in order to continue the narrative that criticism of the President's lack of action on this subject is absurd.

mheslep, you're right, I totally misread your post . My apologies.

 

[Astronuc]

Interesting perspective - Who forced a fiscal cliff deal? Try foreign investors
http://news.yahoo.com/forced-fiscal-cliff-deal-try-foreign-investors-204534810--politics.html

How much of influence was it really?


Meanwhile - 'Fiscal cliff' deal leaves lots of issues dangling
http://news.yahoo.com/fiscal-cliff-deal-leaves-lots-issues-dangling-232914021--politics.html

'Fiscal cliff' deal: After rush of relief, debt ceiling clash already looms
http://news.yahoo.com/fiscal-cliff-deal-rush-relief-debt-ceiling-clash-194845620.html

CEOs pan fiscal cliff deal, vow to continue debt fight
http://news.yahoo.com/corporate-america-voices-frustration-fiscal-cliff-deal-210132593--business.html

It would help if companies hired the unemployed (so the government wouldn't need to pay unemployment benefits) in productive jobs that would generate more revenue and profits.

I'd like to see patriotic millionaires and billionaires supporting entrepreneurs and small businesses.

On the other hand, some of them give substantially to charitable causes (rather than pay taxes)
http://finance.yahoo.com/news/buffett-3-billion-gorilla-2012s-165558264.html

 

[Astronuc]

The real issue is runaway spending
http://www.cnn.com/2013/01/03/opinion/navarrette-republicans-cliff-deal/index.html

That's actually part of the problem. Preferable (lower) tax rates to financial supporters is another.

The unfunded (or underfunded) wars costing ~$1.5 trillion (about 10% of the debt) is yet another.

 

[Borg]

I got my first 2013 paycheck on Friday which was significantly lower than similar paychecks in 2012. I know that the paycheck was a guess by my company's payroll department and will be adjusted in the comining months. However, no matter how many times I explained things to my wife last year, it didn't sink in until then. I'm sure that there will be a lot of people similarly 'blindsided' no matter how much it's been in the news.

 

[JonDE]

Has anyone found out what is actually gone through with this bill that has passed? I've been picking up bits and pieces from around the internet, some from sources more reputable then others.

From these sources I have gathered that
1) the 2% SS tax cut has been allowed to expire.
2) Income rates have gone up on couples making more then 450k and individuals making more then 400k
3) Some rates have gone up on earning from capital and dividends

Part 3 I picked up from a convo on another message board that was not linked to anything, so I really have no idea if that part is true at all.

Also, from an article I read yesterday,
http://www.nationalreview.com/articles/336944/fiscal-cliff-mirage-mark-steyn#
He is claiming that there are 2B a year in cuts, 33B a year in new spending, and the new taxes will increase revenues by some 62B a year. Using some quick math that seems that the deal will only reduce the debt by about 31B a year.

I'm trying to figure out how much of this is true, does someone have some better sources?

 

[mheslep]

mheslep, you're right, I totally misread your post . My apologies.

Appreciated.

 

[Astronuc]

Next up is the conflict over the debt ceiling and expenditure reductions -


Meanwhile, back at the ranch -

Americans feel austerity's bite as payroll taxes rise
http://news.yahoo.com/americans-feel-austeritys-bite-payroll-taxes-rise-141032370.html


Some economists have indicated a growth rate of 0.6% for the US economy in 2013.