In the movie The American President, President Andrew Shepherd - played eloquently by Michael Douglas - was talking about his relationship with Sydney Ellen Wade, the Washington lobbyist portrayed by Annette Bening. But we can take that narrow excerpt and skillfully apply it to the major players in the ongoing "fiscal cliff" battle on Capitol Hill, because quite frankly, they're too damn busy trying to keep their jobs, and not busy enough doing their jobs.
And by "doing their jobs," I mean, of course, getting the nation's financial picture back on the path of stability, and staying away from what has been dubbed one of the 38th annual "List of Words to be Banished from the Queen's English for Misuse, Overuse and General Uselessness" released today by northern Michigan's Lake Superior State University - the so-called "fiscal cliff."
The fiscal cliff refers to the economic effects that could result from tax increases, spending cuts and a corresponding reduction in the U.S. budget deficit beginning in 2013 if existing laws remain unchanged. The deficit, which is the difference between what the government takes in and what it spend, is projected to be reduced by roughly half in 2013. The Congressional Budget Office estimates that this sharp decrease in the deficit (the fiscal cliff) will likely lead to a mild recession in early 2013.
According to The Washington Post, on or around Jan. 1, about $500 billion in tax increases and $200 billion in spending cuts are scheduled to take effect. That’s equal to about four percent of GDP, which is, according to the Congressional Budget Office, more than enough to throw us into a recession.
The current down-to-the-wire negotiation is the byproduct of some 16 months of procrastination by our federal elected officials, the result of debt ceiling discussions that took place during the summer of 2011. In August 2011, Congress passed the Budget Control Act of 2011 as part of an agreement to resolve the debt-ceiling crisis. The Act provided for a Joint Select Committee on Deficit Reduction (dubbed "the super committee") to produce legislation by late November 2011 that would decrease the deficit by $1.2 trillion over ten years. When the super committee failed to act, another part of the BCA went into effect. This directed automatic across-the-board cuts (known as "sequestrations") split evenly between defense and domestic spending, beginning on January 2, 2013.
According to George Zornick of The Nation, here is what is slated to happen if no deal is reached by midnight tonight:
All the Bush tax rates will revert to Clinton-era levels. This means the top marginal rate will go from 35 percent taxation to 39.6, but it also means $2,200 per year in extra taxes for average middle-class families. Expiration of the payroll tax cut, which was enacted in late 2010 as a stimulative measure. Americans will go back to paying a 6.2 percent payroll tax rate, up from the current 4.2 percent. Expiration of unemployment insurance for 2.1 million Americans. These are the long-term unemployed who are reaching the end of their allowed benefits, unless Congress agrees to extend them. Another 1 million Americans would lose those benefits in the first quarter of 2013 alone. The budget sequesters kick in. Over the next ten years, the government must realize $1.2 trillion in budget savings through across-the-board cuts in defense and non-defense spending. This is often misunderstood as $1.2 trillion in actual cuts, but some of those savings can come from simply not paying interest on debt as a result of spending reductions—so the actual amount of true budget cuts would be $984 billion. Half ($492 billion) would come from defense spending over ten years, and half from non-defense discretionary spending. (Medicaid and Social Security are protected.) Adjusted for all this, it means about $55 billion in actual cuts for 2013 to the Pentagon in an across-the-board fashion, and another $55 billion from non-defense discretionary programs like the FBI, the EPA, student loans, national parks and so on.
The biggest divider between Democrats and Republicans is on how much deficit reduction should be achieved through spending cuts versus revenue increases. And that's where we are now, with Republican House Speaker John Boehner and Democratic Senate Majority Leader Harry Reid trying not to drive their vehicle off the edge with Richard Wagner's "The Ride of the Valkyries" playing majestically in the background ...The annual “doc-fix” expires. There is a Medicare growth formula that ties doctor compensation from the program to the economy, but the formula’s a little hanky—for the past decade it would have seriously shortchanged doctors. So each year Congress passes the “doc-fix,” which makes up the payment difference. If the doc fix isn’t passed again this year, doctors would see a 26.5 percent reduction in Medicare payments. The Alternative Minimum Tax patch expires. This is an extremely complicated parallel tax system conceived in 1969 that, absent a yearly congressional patch, would force an ever-increasing number of Americans to pay higher taxes that the original AMT legislation never intended them to pay.
What is infuriating to many, such as myself, is that for all the political posturing, finger pointing, and overall unpleasantries that have been exchanged the past few weeks - culminating in the current negotiations and love songs - is that, again, the current down-to-the-wire negotiation is the byproduct of some 16 months of procrastination by our federal elected officials. As many pundits, including those at Forbes (which is a pretty good source of information on all things financial), have noted, our elected officials are acting more like spoiled children than leaders. Congress set the parameters for this entire pity party, and now its leaders (in title only, apparently) can’t agree on how to confront or resolve the crisis, despite over a year of discussion and an entire presidential election which largely focused on the topic. Parents will recognize the misbehavior - they have put everything off to the last minute, and have not taken responsibility for their own actions.
Or, in this case, inactions. As John Avlon noted in The Daily Beast, "The problem of course is that polarization - the decline of competitive swing districts due to the rigged system of redistricting - has made most Republican congressmen terrified of being primaried from the right for being too reasonable. This problem has been compounded by the rise of partisan media, which has dumbed down civic discourse into an angry, idiotic us-against-them exercise. The result is congressional division and dysfunction."
Another option would be for Congress (which is proving to truly be the opposite of "progress") to wait a few days and resolve the issue in early January. Currently, Democrats want higher taxes on the wealthy while Republicans (mostly) refuse to vote for any tax increases, period. But if we go over the cliff, taxes will automatically jack up much, much higher than either party wants. At that point, Republicans and Democrats only need to debate how to cut taxes from this new baseline.
Sigh.
Supposedly, a deal is imminent. According to some who have analyzed the alleged specifics, we're all pretty much screwed. Nothing has been accomplished that addresses the uncertainty factor. The deal insures a big deficit for 2013. It will not increase tax revenue from the top 1%. It will result in a big increase in payroll taxes that will hurt the bottom 40%. And what may be the truly insipidly stupid icing on the fiscal cliff of insanity is President Obama's executive order a few days ago offering a (small) pay raise for all federal employees, including the US Congress ... which several legislators, including Republican Sen. Rob Portman, Republican Rep. Michele Bachmann, and Democratic Rep. John Barrow (among others), are very much against.
Federal legislators against salary increases that were never requested? Maybe there's some hope after all.
Or not. Merry fucking New Year, America.
