A combination of expiring tax cuts and imminent spending cuts is being called a "financial cliff," and officials stress that if something is not done, the American economy is on its way to plunging over the edge at the end of this year.
With the Bush tax cuts set to expire and hundreds of billions of dollars in funding to be automatically slashed, mostly from the Department of Defense budget, Democrats and Republicans have not indicated that they are approaching a consensus. Instead, the opposite seems to be occurring. Democrats, The Takeaway's Washington correspondent Todd Zwillich says, are using the threat of another economic recession to achieve their policy objectives in what reminds him of the Republicans' strategy with last year's struggle over the debt ceiling.
"The Democrats are saying this: 'Hey, if we do nothing, all the Bush tax cuts just expire. We don't have to pass a law to make them expire; they're set to expire on their own. We're fine with doing nothing,'" Zwillich says.
Speaker of the House John Boehner accused the Democrats of doing just that when he spoke with reporters yesterday. “Now Democrats are threatening to tank our entire economy and harm our national security if they don’t get a massive tax increase on small-businesspeople,” he said.
If the tax cuts are allowed to expire, the child credit tax would revert to $1,000 from $500, and around 60 percent of taxpayers would see an increase of 3 to 5 percent.
Another component of the financial cliff is the defense spending sequester, an automatic $500 billion cut to the Defense Department's budget. Defense contractors warn that the cuts would mean the loss of thousands of jobs, and lawmakers from both parties have expressed a desire to cancel or restructure the cuts.
A recent comment from Republican Senator Lindsey Graham is a possible sign that the Democrats' use of leverage may be having an effect. "Let's say corporate jet deductions for one year," Graham said. "Let's say that we're going to take that deduction away from one year so that we can actually buy fighter jets to protect our troops. I would take the criticism to come with that."
"That's politics. Who knows if it's going to work?" Zwillich says. "That's one side using extreme leverage against the other and sort of using the threat of a crisis and folding their arms and saying 'Come to us, or we're willing to let the crisis happen.'"