Navigating the fiscal cliff

Fiscal CliffBy Robert Romano — Now that the Nov. 6 reelection of Barack Obama is in the books, all eyes now turn toward the fiscal cliff that looms at year’s end.

Barack Obama need only do nothing, and everyone’s taxes will go up on Jan. 1.

Specifically, personal income tax rates will increase from 10 to 15 percent, 25 to 28 percent, 28 to 31 percent, 33 to 36 percent, and 35 to 39.6 percent. Capital gains taxes would increase from rates of 5 and 15 percent to 8, 10, and 20 percent.

Payroll taxes too will increase, from 4.2 to 6.2 percent for individuals, and from 10.4 to 12.4 percent for those self-employed.

Estate taxes also are set to increase, from the current 35 percent rate with a $5 million exclusion to the old 55 percent rate and $1 million exemption. And the alternative minimum tax patch will similarly expire.

Other provisions of tax law including expenditures and certain credits will be affected, too.  However, the tax provisions only compose one portion of the fiscal cliff. In addition, members of Congress and Obama will be deliberating on the sequestration cuts, the doc-fix in Medicare, and the $16.394 trillion debt ceiling will be hit to boot.

Obama’s leverage is two-pronged. If House Republicans refuse to give him what he wants — which includes tax increases for top salary-earners — then everyone’s taxes will go up. Using the bully pulpit, Obama would then exploit the situation as a proof point that Republicans only care about protecting the rich at the expense of everyone else.

Such is the game of chicken being played.

Effectively, that leaves House Republicans with a choice to either take Obama’s proposed legislation or leave it. That is, unless they feel they can get a better deal through negotiation — or through the application of some leverage of their own.

For their part, it appears Republicans’ leverage includes the possibility that it will be Obama who actually gets blamed if taxes increase across the board. After all, raising taxes on job creators into the teeth of a slowing economy, when unemployment is already really high, will likely only make the recession worse.

But can Republicans get that message out?

Alternately, Obama’s government cannot function at all really unless the national debt ceiling is increased. Perhaps House Republicans could work out a deal that addresses all facets of the fiscal cliff — if they’re willing to use the debt ceiling as leverage.

Obama wants the debt ceiling increased. The House wants to deal with all the tax rates and defense sequester cuts.

However, we now know that the U.S. Treasury has no real contingency plan in the event the debt ceiling is reached, as revealed in a recent inspector general’s report. As a matter of policy, the Treasury would simply postpone payments in lieu of a legislative resolution. It would not prioritize payments of principal and interest to our creditors.

In other words, the administration would effectively default on our debts until Congress caves and gives the White House what it wants — and use the bully pulpit and a complicit media to cast the blame.

Based on the above, we are led to believe that if Republicans do not give in to Obama’s demands to raise taxes on job creators, he will let everyone’s taxes go up. And that if they do not meet his demands for another blank check to borrow and print trillions of more dollars, he will let the nation default on its obligations.

Already, House Speaker John Boehner has offered that he is “willing to accept new revenue, under the right conditions.”

Boehner can try negotiating, but if Obama proves intransigent in his insistence on raising taxes into the teeth of this recession, they might try calling his bluff. See if Obama is really willing to fly off the cliff.

Robert Romano is the Senior Editor of Americans for Limited Government.

This article has 7 comments
  • Glenn Nelson 08.11.2012 12:01 PM

    This whole scenerio did not take long to again get started. Raise the debt limit. Ya right!! The government has already over spent again already this year. These Representatives told us, the Taxpayers, that they were going to reduce their spending and had plans to do so. By the end of the next four years of Obama, our debt will be $22T plus. No doubt in my mind. Get ready grand kids. You kids will have to pay hard for this spending..

  • James H Waters Phd 08.11.2012 2:11 PM

    Sure, Robert. Asking for a tiny raise in taxes on the wealthiest, which is going to make absolutely no difference in the amount of jobs created, is “intransigence.” I don’t see where your side is offering anything at all, nor have they done so over the years. This entire “liberty action” site is filled with calls for intransigence and continued insistence on the same nonsense that has just been solidly rejected by Obama’s re-election. Get a grip. People know that these billionaires can pay a little more in taxes without pain or economic consequences, despite the hype to the contrary; they paid more in past times when prosperity was rampant. They’ve already got a larger proportion of the wealth than in recent history, and they’re not creating any jobs. Continuing to lay off workers providing government services we need only makes them less likely to create jobs. You seem not to realize that people are not going to create jobs until there are people who can buy what’s produced. This insistence on my way, 100 percent, or the highway, is exactly what we don’t need.

  • striking1 08.11.2012 3:30 PM

    My opinion is let the taxes expire for everyone.. so be it. Lets go off the fiscal cliff and then insist on budget cuts etc. The dems will have what they wanted more taxes and maybe then we can implement some fiscal responsibility. Almost everyone can share in paying for all the programs that this administration and others love to create. When the average person has to pay more of this burden we may knock some common sense back into the population as a whole because at this point there isn’t enough tax money left no matter how much they assess us to pay for our vast debt…it is totally erroneous to put the burden on one group lets all pay for this social nightmare.

  • Ed Weirdness 08.11.2012 3:34 PM

    I’m okay with the fiscal cliff remaining right where it is. If we are to insure fairness in suffering across all income levels, what better way than to demonstrate the negative consequences of over spending? The reality shock of our nation going over the fiscal cliff is a far better, more certain way of getting everyone’s attention and focusing on the real problem (it’s the overspending moron) than to continue this dangerously misguided effort to punish the productive and successful, rather than rein in out-of-control government spending. Going over the fiscal cliff is just what our nation and the Obama Administration needs. The Dems refusal to present a workable budget is the reason the fiscal cliff exists. The only thing worse for our nation would be to allow this insane tax and spend policy to continue.

    The founding fathers feared that something like this would happen, and now it appears that their worst nightmare has become manifest.

    “A democracy cannot exist as a permanent form of government. It can only exist
    until the voters discover that they can vote themselves largesse from the
    public treasury. From that moment on, the majority always votes for the
    candidates promising the most benefits from the public treasury with the result
    that a democracy always collapses over loose fiscal policy, always followed by
    a dictatorship. The average age of the world’s greatest civilizations has been
    200 years.”

    ― Alexis de Tocqueville

  • widowmaker 08.11.2012 8:39 PM

    In what numbers system do households making $250,000 per year qualify as “billionaires”? In fact they are not even millionaires.

  • topeka 10.11.2012 11:49 AM

    piled higher and deeper,

    ha, ha, ha…

    buddy, do you have a brain?

    Everything you write in your post is a lie, if not a Big Lie.

    Except the things which are just plain wrong.

    Question to meat head: What do you do when you are drunken as a skunk and you are driving slowly up the freeway ramp and you see headlights coming towards you?

    Meat head phd answer: Hit the gas! That stoopid conservative is going the wrong way!! Teach him a lesson!!

    Thanks!!

    You made day!! ;-))

  • topeka 10.11.2012 11:50 AM

    Glenn,

    good post.

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