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Kimberly Amadeo

The Gist of the Fiscal Cliff Negotiations

By November 21, 2012

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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.

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Comments

November 27, 2012 at 12:04 pm
(1) Cyborg1939 says:

Your optimism over a timely fix for The Fiscal Cliff is duly noted. Hopefully it will travel “From your Mouth to Congress’s Ears.”. Many of us are far from optimistic. Time will tell.

Perhaps The New Normal contains a dysfunctional Congress on a permanent basis ?

November 27, 2012 at 12:19 pm
(2) useconomy says:

Well, if they do so, they’ve taken the “fun” out of dysfunctional.

Just kidding. In all seriousness, I hope not. I think that even the most politically savvy Congressmembers don’t want to be the laughingstock of the world. The fact that they’ve had to use sequestration as a bat to beat themselves into balancing the budget is just one indication of how out of balance they themselves have become. Congress sets the budget!

Second, putting the entire U.S. economy at risk (and therefore the global economy) over partisan politics is not good politics long-run. I think most Americans are more concerned about whether they get a good job and can afford a home than they are about the debt. They hire elected officials to run the country — not to put the country at risk because they can’t iron out their differences.

Perhaps I am giving Congress too much credit. But from everything I’ve heard so far, it appears they realize they will all get booted out of office if they don’t fix this.

Kimberly

November 27, 2012 at 3:01 pm
(3) Chan says:

It is not the economy of US is the problem but the people attitude living in US. Last week spiritual leader Dalai Lama said to have compassion and understanding to the people of the world and in my opinion this is the great problem in US, because this telling does not holds good for non-socialistic countries because people will not exchange their thoughts and ideas for the good of living.What is your thought about this Kim.

I think having compassion and understanding helps.

November 27, 2012 at 3:17 pm
(4) useconomy says:

Hi Chan,

I think having compassion and understanding helps if only for your peace of mind. I find that people who are judgmental, negative and critical are generally unhappy themselves. They always seem to have problems.

People who are understanding and compassionate are more forgiving, have better senses of humor and are more fun. They have less problems because they are surrounded by other helpful people.

In the final analysis, we are all in this together. However, even if we weren’t, I would prefer to be optimistic, understanding and compassionate because it is easier on me!

Kimberly

November 27, 2012 at 9:21 pm
(5) Renee Stavros says:

I think the author oversimplified this issue. The wealthy don’t have near money- even if they were taxed at 100%- to pay for deficit reduction and our ballooning entitlement liabilities. We need higher taxes and major entitlement reform or we are just “kicking the can down the road.

November 30, 2012 at 4:52 pm
(6) John says:

Falling over the Fiscal Cliff would be a good thing. It means living within your means. Cut spending introduce a VAT and the U.S. will return to major power status.

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