Facing Facts on Fiscal CliffHow did the U.S. reach a 'fiscal cliff' and what does it mean? Here are the facts.
SummaryThe U.S. faces the possibility of another recession — the third in 11 years — if President Obama and Congress cannot find a way to avoid the so-called fiscal cliff. The one-two combination of massive tax increases and spending cuts scheduled to take effect, beginning Jan. 1, would push the unemployment rate back above 9 percent, according to the Congressional Budget Office.
There’s a growing consensus in Washington that some combination of spending cuts and increased revenues is needed to reduce annual deficits and slow the federal debt — without going over the fiscal cliff. The disagreement is over the details, particularly over how and how much to increase tax revenues and where to cut spending.
Some Republicans, including House Speaker John Boehner, say the president’s tax proposals would “destroy nearly 700,000 jobs,” which is an exaggeration. Many Democrats would prefer not to cut entitlement programs as part of the negotiations, even though the three largest entitlement programs — Medicare, Medicaid and Social Security — would consume 55 percent of all federal spending by 2022, compared with 43 percent in 2011, according to the CBO.
We take no position on what Congress should do. But we can offer some factual context to help understand the scope of what the CBO calls the nation’s “fundamental budgetary challenges.”
Some facts to consider:
- The scheduled tax increases, if allowed to take effect, would net an additional $536 billion in fiscal year 2013, according to the nonpartisan Tax Policy Center, raising more than $5 trillion in 10 years. Nearly 90 percent of Americans would pay more in taxes, TPC says, with the average increase being nearly $3,500.
- The automatic spending cuts scheduled to take effect would cut $1.2 trillion over 10 years, split roughly in half between domestic and military spending.
- Obama’s plan calls for increasing revenue by $1.6 trillion over 10 years. Republican congressional leaders have not proposed a counter offer for revenues, but during the so-called “grand bargain” negotiations in the summer of 2011, Boehner reportedly had agreed to $800 billion worth of increased revenue.
- As a percentage of the nation’s economy, the federal government now spends 22.7 percent and collects in revenue 15.7 percent — a large gap that has persisted for years and has contributed to four straight years of $1 trillion deficits.
- A bipartisan fiscal commission created by Obama has proposed capping revenues at 21 percent by the year 2022, and getting spending below 22 percent."
I highly recommend it, no matter what side of the partisan divide you are on.
There are some observations I would make regarding the current status of negotiations: 1) The GOP dared Pres. Obama to put forth his plan first. He did: it was the same plan he presented before November and the GOP said "it was not a serious plan". However, what the President has done is to put the ball in the GOP's court to come up with theirs. It is the opening salvo, not the final word, in negotiations. 2) Obama's public campaign is not so much to promote his plan, but to make sure that any failure to avoid the cliff is clearly the fault of the GOP. He is armed with the results of the November campaign and exit polls backing up three issues: Americans want the rich to pay more as part of a balanced solution and few want to solve the medicare problem by vouchers. Voters are already inclined to blame the House GOP for not resolving the problem and compromising. Obama understands that he is not facing re-election in 2 years; they are...and they will pay for their stonewalling then. 3) Obama wants to get this done before January 1. The uncertainties and the fiscal cliff would be harmful to the economy that is fragile enough now. There is 1.6 trillion dollars in private capital waiting to be invested in our economy, but no one is budging until there is more certainty. We need to put the fiscal cliff issue to rest ASAP.