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One More Time: The Stakes of the Fiscal Cliff ^ | December 26, 2012 | Kevin Glass

Posted on 12/26/2012 6:27:35 PM PST by Kaslin

President Obama is on his way back to Washington, as the Associated Press reports that he's "cutting short his traditional Christmas holiday in Hawaii, planning to leave for Washington on Wednesday evening... expected to arrive in Washington early Thursday." Most Americans probably won't sympathize that the President has a short vacation - after all, at work, he didn't get that big project finished in time for the holidays.

The elements of the fiscal cliff can be roughly divided into four categories: defense spending cuts, non-defense spending cuts, income tax hikes, and payroll tax hikes. Of these, what has gotten the most attention are the income tax hikes, and rightly so: they are by far the largest part of the cliff. In the next two years, expiring tax provisions, including a patch for the Alternative Minimum Tax, will be worth $750 billion to taxpayers.

Included in this large tax portion are hikes on capital gains and dividends taxes. These may be the most dangerous parts of the tax hikes, but all of them have the potential to seriously harm the economy. The tax hikes that Democrats are gung-ho about, for example, on the top income-earners alone, may cost 300,000 jobs over the next two years.

One of the smallest but most valuable parts of the fiscal cliff are the cuts to defense spending. Over the next two years, the defense spending sequester would cut defense spending by $75 billion and cost 700,000 jobs on their own.

The payroll tax cut, a tax cut mostly supported by Democrats that has effects mostly on lower income-earners, doesn't appear as if it's got much support for renewal. Earlier this year, Treasury Secretary Tim Geithner said he saw no good reason to support its extension. Since Republicans haven't exactly shown enormous enthusiasm for the payroll tax cut, it's likely not to get much traction.

Make no mistake: every piece of the fiscal cliff has the possibility to affect the economy and unemployment over the next two years. According to the Congressional Budget Office, even increased spending on unemployment insurance is still likely to generate more economic growth.

This all comes with the caveat that a full fiscal cliff fix will help the economy in the short-term, averting a recession, but cause long-term harm to economic growth. The CBO has also estimated that GDP will be on a permanently lower trendline by 2020 if the fiscal cliff is averted without future offsets.

What deficit hawks have been hoping for is a "grand bargain" that makes long-term tax and entitlement reforms. It's looking increasingly unlikely, however, as President Obama has been dead set on his way or the highway, refusing to take any proposal from John Boehner seriously or encouraging Harry Reid to work with Republicans' proposals.

Going over the cliff by even a few days will cause tangible harm to the economy. Progressives have advocated such an approach because it will be good for Democratic priorities. Unfortunately for Republicans, kicking the can own the road is increasingly looking to be the most likely outcome - to the detriment of long-term economic growth.

TOPICS: Business/Economy; Culture/Society; Editorial
KEYWORDS: fiscalcliff; kevinglass; obamataxhike; payrolltaxcut; taxhikes

1 posted on 12/26/2012 6:27:39 PM PST by Kaslin
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To: Kaslin

Forgotten is a 5th element of the “Fiscal Cliff” — that being the debt limit. It is this element that the House holds as a wild card. Without raising the debt limit, the ONE can’t do anything except trying the nuclear option.

2 posted on 12/26/2012 6:32:31 PM PST by Bobby_Taxpayer
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To: Kaslin
what has gotten the most attention are the income tax hikes, and rightly so: they are by far the largest part of the cliff.

That is as far as I am going to read. Start off with the wrong premise and whatever follows is wrong.

3 posted on 12/26/2012 6:33:11 PM PST by oldbrowser (They are marxists, don't call them democrats)
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To: oldbrowser
I've got it with I stopped reading right there, or that is how far I am going to read.

If you don't want to read the article then don't, but don't make a big announcement of it. *rme*

4 posted on 12/26/2012 6:39:17 PM PST by Kaslin (He needed the ignorant to reelect him, and he got them.)
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To: Kaslin

At some point, a nation that has sown for decades the wind of depravity, corruption, and sinful folly WILL reap the whirlwind of dysfunction and pain.

If not this year, then some year soon.

As surely as night follows day.

“Be not deceived; GOD is not mocked: for whatsoever a man soweth, that shall he also reap.”

5 posted on 12/26/2012 6:40:30 PM PST by Nervous Tick (Without GOD, men get what they deserve.)
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To: Kaslin

This silly writer seems to think if u keep kicking the can down the road,
the can disappears.
The reality is the outcome of kicking the can down the road with Grand Bargains, will cause a much bigger collapse, one that won’t be manageable .

6 posted on 12/26/2012 6:45:50 PM PST by tennmountainman
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To: Kaslin

The House should simply pass the bill Republicans think is appropriate. Continue the tax cuts, include the spending cuts and send it to the Senate. Let that old fool Reid scream all he wants but let him pass his own version with the Democrat tax increases. Like to see those Democratic senators facing reelection all vote to increase taxes and just what spending cuts they will endorse. Once the House passes a bill, any bill, the pressure will be on the Senate and Obama.

7 posted on 12/26/2012 6:47:42 PM PST by allendale
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To: Nervous Tick

Well said. God will not be mocked.

8 posted on 12/26/2012 7:41:28 PM PST by lookout88 (.combat officer's dad)
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To: allendale

Who or what will stop the government’s spending? The Senate hasn’t prepared or filed a budget for four years (I think!) The President decides what laws he will or will not obey, the same attitude resides in E. Holder, H.R.Clinton (Oh, my head hurts!!), Big Sis who scares the bejimmers out of me, TSA, etc etc.

So what if the spending isn’t abated? Will not increasing the debt limit prohibit or abate government spending? I doubt it.

Atlas is so Shrugged!

9 posted on 12/26/2012 8:13:24 PM PST by jayrunner
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To: jayrunner

A Republican House “fiscal cliff” budget is dead on arrival in the Democratic Senate.

The best that can be done is to hold everything up for another four years.

The voters decided in November not to decide.

10 posted on 12/27/2012 1:30:14 AM PST by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives In My Heart Forever)
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To: Kaslin

This is literally a legislated catastrophe for all of us.

11 posted on 12/27/2012 7:06:10 AM PST by Crucial (Tolerance at the expense of equal treatment is the path to tyranny.)
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To: Kaslin

At Edge of ‘Cliff,’ White House Lashes Out at -

‘Congressional Stupidity’

4:07AM Thursday
December 27, 2012

WASHINGTON) — With only days to come up with a deal to avoid the fiscal cliff, the White House said “congressional stupidity” was damaging the economy but that an agreement could be reached if Republican leaders don’t get in the way.

Gee, where have I heard such words... ‘”acted stupidly”.

Where there be a beer summit?

12 posted on 12/27/2012 7:29:25 AM PST by KeyLargo
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