Thursday, January 24, 2013

Going Over the Cliff

From the Dec. 26, 2012 issue of FrontPage Magazine:

Going Over the Cliff

By Matthew Vadum

Unless a political miracle happens, America is going over the so-called fiscal cliff next week, possibly plunging the nation into a fresh economic recession.

With the abrupt withdrawal from consideration last week of House Speaker John Boehner’s “Plan B” alternative fiscal plan, there is no reason to believe a political deal preserving current income tax rates and averting significant spending cuts will be reached before January 1.

There simply isn’t enough time left before current tax rates expire and the political will to act appears to be absent among the major players.

The Republican-controlled House, Democratic-controlled Senate, and President Obama apparently aren’t even talking about ways to avert the metaphorical cliff at the moment. President Obama has humored Republicans’ demands to reform the nation’s out-of-control entitlement programs but has made no concrete proposals about how to do it. The funds that would be generated by Obama’s proposal to soak high earners would not even be used to pay down the national debt.

The national debt now stands at $16.35 trillion, up from $10.6 trillion on Inauguration Day 2009. But that $16.35 trillion figure is misleading. Government accounting tricks keep another $86.8 trillion in unfunded liabilities related to Social Security, Medicare, and federal employees’ future retirement benefits off the books and out of the public eye. Add the two figures together and you arrive at the more accurate, unimaginably large sum of $103.1 trillion.

In Washington, D.C., Congress has left town for the Christmas holidays. The Senate is scheduled to meet Thursday but no House session is scheduled. House members have been told they could be recalled to Washington on 48 hours notice. President Obama is off in Hawaii for Christmas vacation.

Lawmakers are busy pointing fingers at each other. A spokesman for Senate Minority Leader Mitch McConnell (R-Ky.) told Reuters it was now Senate Majority Leader Harry Reid’s (D-Nev.) move. “We don’t yet know what Senator Reid will bring to the floor. He is not negotiating with us and the president is out of town,” the aide said. “So I just don’t know what they’re going to do over there.”

On Twitter, Reid warned, “There will be very serious consequences for millions of families if Congress fails to act” regarding the fiscal cliff.

A few days ago Speaker Boehner pulled a vote on his measure that would have raised taxes on those earning more than $1 million a year after it became clear that members of the House GOP conference were not on board with the plan. Many conservative Republican lawmakers opposed the proposal because they believe Republicans shouldn’t go along with President Obama’s class warfare-driven “soak the rich” policies. They reason that if taxes are to go up, Republican fingerprints should not be all over the increase because it would damage the Republicans’ brand and infuriate the party’s political base.

The fiscal cliff refers to huge across-the-board individual income tax increases and $1.2 trillion in scheduled spending cuts that fall heavily on the Pentagon that take effect at the end of this year.
Despite the current stalemate in the nation’s capital, it’s still possible that both sides will be able to hammer out some kind of compromise early in the new year. “We may go off the cliff on January 1, but we would correct that very quickly thereafter,” Congressman John Yarmuth (D-Ky.) told a TV network.
When higher tax rates and budget cuts kick in on January 1, markets will be disrupted. Workers who hadn’t been paying attention to the fiscal cliff debate will get a rude shock when a greater portion of their paychecks is suddenly withheld. Public pressure could force lawmakers to make some kind of a deal, perhaps retroactively extending current tax rates from December 31.

Lawmakers could also vote to maintain the status quo and kick the can down the road for another few months or more.

If taxes are allowed to rise January 1 but then Congress votes after the fact to cut them, the tax tables the IRS uses to calculate withholding taxes could be changed, temporarily inconveniencing workers and employers.

But it’s not so clear if defense spending cuts could be as easily reversed. If the Department of Defense (DoD) isn’t authorized to spend the funds that are scheduled to be cut in a few days, it has to take immediate steps to reduce spending, canceling programs and laying off employees.

Relaunching suspended programs and rehiring laid off DoD employees would almost certainly generate major headaches at the Pentagon.

And who knows what harm it could cause to the nation’s defenses.

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