A Tax Standoff and a Fiscal Cliff

Thursday, July 19, 2012

Inside the dome of the US Capitol building (O Palsson/flickr)

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.'"


Todd Zwillich

Produced by:

Robert Balint, Rebecca Klein and Brad Mielke

Comments [4]

Don from Miami

I had to quit work due to stage 4 prostate cancer with metastasis and was nearly bankrupted with medical bills and insurance problems due to the greedy policy of rejection of coverage due to preexisting conditions. Now I live on a meager social security income with no pension while financial tricksters make millions while crushing the lives of people like me. I elected not to receive welfare, but if I had, before I was able to receive social security, should I have been forced to look for work in order to receive help? Can you empathize with those who are desperate through no fault of their own? Or are you so isolated from the real world of need in our very interdependent economic society that you cannot even wrap your mind around what it takes to stay alive without money today. We are no longer in a society of independent farmers who live off the land. People who accept welfare are not living in luxury. If we refuse to care for them while we support those who connive to make millions by risking the wellbeing of all with no consequences if their gambles fail, what does that say about us?

Welfare rules benefit from tweaking as the conditions of life change. Can we wait for this Congress to act in response to the dire needs of today? In government at this time, only the President can make such adjustments in response to immediate need. They can be reversed as appropriate in the future.

Jul. 19 2012 11:54 AM

President Clinton thanks to the demands of Speaker Gingrich ended "welfare as we know it" which contributed to the surplus that Clinton supporters brag about. President Obama just rewrote it on his own (unlawfully?) without Congress by dropping the work requirement which will encourage more welfare, not less.

Jul. 19 2012 10:36 AM
Don from Miami

Republicans must believe most voters are ignorant of economics and history. The foolish debt ceiling rule exists only to allow the exploiters of ignorance to play on that ignorance for political gain. A vote to increase the debt ceiling is only a de facto vote to avoid a government default on paying bills already owed on existing debt agreements. The rule was given its name to exploit ignorance. When Newt Gingrich was Speaker of the House he threatened to shut down the government if President Clinton didn't agree to spending cuts to reduce the deficit. President Clinton refused to cut help to the needy so he vetoed the spending bill. Gingrich refused to pay the bills and so shut down the government. President Clinton went on to overcome the deficit and build a surplus without cutting needed programs. Gingrich lost his position. Voters who are ignorant of economics and history allow conservatives to continue to exploit them.

I am retired now but I know about ignorance of economics and history. I was a history teacher. The ignorance is appalling and Republicans know it and are counting on it.

Jul. 19 2012 10:28 AM

What is "amazing" is the fatuous moral equivalence narrative that is being weaved by the media.
Ever since the Pelosi Congress was thrown out after nearly quadrupling the deficit and forcing in the unpopular Obamacare TAX the Democrat leadership has been manufacturing one political crisis after another and the media predictability has been enabling their deception.

The Democrat Congress in 2010 could have raised taxes after their massive spending but refused to pass a budget and deliberately created a financial crisis for pure political motives. They waited for Republican leadership in the House and used the debt they ran up to force in taxes that they did not have the political will to pass themselves and allowed the nation to suffer.
The Senate has not offered a budget in three years and the President's budget was thrown out by BOTH parties twice while Cap and Balance and other responsible long term measures along with repeal of the Obamacare tax has been denied debate in the US Senate.
It takes time to unravel the pre-packaged deception in government and the media while both continue to muddy the waters.

Rather than "playing chicken" The Democrat leadership is engaged in a a classic case of Freudian "projection" of blaming others for what they are clearly doing themselves and naturally the media accept the false narrative.

Jul. 19 2012 08:00 AM

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