It appears the threat of the fiscal cliff is working to loosen the logjam in negotiations between the Democrat- controlled Senate and the Republican-controlled House. But, at last week's kick-off meeting Senate Majority Leader Harry Reid said preliminary discussions went so well that he expects a resolution before Christmas.
That's good for three reasons. First, avoiding the fiscal cliff means avoiding a recession. The sooner business leaders and consumers know we aren't headed that way, the better economic growth and the holiday retail season will be.Second, the sooner that Congress can get the budget-setting process back in order the better. Although creating and living within a budget can be tedious, it should not be allowed to become a crisis. It's embarrassing that Congress has let the process get so far out of hand that sequestration should even need to be considered as a tool.
Third, it indicates that the bitter partisan-ship that has been a hallmark of the 192nd Congress may be coming to an end. I'm hopeful that we will see a softer, more successful style that will keep the focus on the good of the overall economy.
So, what exactly is likely to happen? The top-line positions are stated by House Republican Leader John Boehner, who has admitted that increasing tax revenue by closing tax loopholes for high-income earners would be OK. If that's not enough, they might consider raising the tax rate on the very wealthy, or raising the rate just a little.
Democratic leaders insist on ending the Bush tax cuts for high-income earners, adding $80 billion a year to revenue. They also don't want to see cuts to entitlements, while Republicans are focused on preserving funding levels for the military. However, in the final analysis, most of the line-by-line negotiating will be done by aides to the various finance and appropriations committees.(Reuters, Scenarios of How Fiscal Cliff Could Unfold, November 21, 2012)
What It Means to You
First, regardless of what is decided, we all win if the fiscal cliff and recession is avoided. Second, continued confidence in Congressional leaders' abilities to reach a solution will boost the economy for the fourth quarter and into next year.
Hopefully, the negotiating process that is used to resolve the fiscal cliff will lay the groundwork to resolve the major budget issues facing the nation. This includes the debt ceiling, which will be reached early next year.