The fiscal cliff deal

January 1st, 2013 at 2:00 pm by David Farrar

It looks like there will be an agreement to avoid the so called fiscal cliff. That is good in the short term for Americans, but the deal looks like it will do little to reduce the deficit – which is why such an unpalatable fiscal cliff was designed – to force the President and Congress to make their own steps to reduce the deficit.

AP reports:

The contours of a deal to avert the ‘fiscal cliff’ are emerging early today (NZ time), with Democrats and Republicans agreeing to raise tax rates on family income over US$450,000 a year, increase the estate tax rate and extend unemployment benefits for one year, officials familiar with the negotiations said.

That side of the deal seems like a reasonable compromise on both sides. In reality come 1 January all the Bush tax cuts had expired anyway, so for the Republicans they are no longer voting for any tax increases – they are just voting for what tax cuts to reinstate. There is a significant difference. They can not get the numbers to reinstate all the tax cuts – so the tax side of the compromise seems okay.

But with a midnight deadline rapidly approaching, both sides were at an impasse over whether to put off automatic, across-the-board spending cuts set to take effect on January 1, and if so, how to pay for that. Democrats want to put off the cuts for one year and offset the so-called sequester with unspecified revenue.

The Republicans are proposing just a three month deferral of the spending cuts. I think a year delay means they will never get agreement on a sustainable plan to reduce spending, so the US Government can live within its means. They need the pressure of a looming deadline.

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15 Responses to “The fiscal cliff deal”

  1. Fletch (6,021 comments) says:

    WTF do Obama and the Dems have against cutting spending? They seem to want to refuse to cut spending at all.
    Raising taxes on the rich isn’t going to help hardly at all.

    Labour seemed to be the same here in NZ. They talked about spending on this and spending on that without any idea of where it was going to come from. What is it with socialists that they think they can keep spending?

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  2. Fletch (6,021 comments) says:

    While the Washington Post reports this afternoon that Congress is considering pushing off all cuts under a new deal to avert the fiscal cliff, top Republicans say that is absolutely false. The sequester cuts will either go through now, as written, or they will be replaced for no more than two to three months to be more specifically calibrated to avoid the blunderbuss across-the-board cuts largely affecting defense.

    During that delay time, cuts equivalent to the cuts that would have happened under the sequester will take place. In short, the same amount will be cut under either deal; the only question is whether the blunderbuss approach happens immediately, or whether short-term cuts are made over the next two months to allow for a more scalpel-like approach.

    Top Republicans say they have no interest in changing the size of the sequester. Republicans are insisting on cuts and/or deficit reduction of equal size during the period in which the sequester cuts are delayed. 

    The proposal currently on the table is reportedly cuts and deficit reduction through elimination of tax giveaways for two months–a grand total of $24 billion in total spending cuts–before a fully-calibrated sequester proposal kicks in.

    Democrats are reportedly holding up that process. They want all spending cuts delayed. In fact, they are currently rejecting cuts they had already agreed to in principle in order to force Republicans to abandon the sequester. That will not happen, Republicans say.

    http://www.breitbart.com/Big-Government/2012/12/31/Exclusive-GOP-cuts-sequester

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  3. Paulus (2,500 comments) says:

    Obama is still playing games with this.
    He does not really want a compromise in order that he can raise taxes across all classes, reduce (minutely) spending, and can then blame the Republicans.

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  4. Monique Watson (1,062 comments) says:

    Actually we just went over the fiscal cliff.

    http://www.huffingtonpost.com/2012/12/31/fiscal-cliff-deadline_n_2389831.html

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  5. Ross Miller (1,661 comments) says:

    The very nature of the US political system means that pork barrel politics reigns supreme with members fearful of an electoral backlash should they make the hard decisions that upset their own particular constituency.

    I really fear for the dollar as the bedrock international currency. Sometime, someplace, someone will say enough is enough and pull the plug and I suspect that someone could well be China..

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  6. cha (3,779 comments) says:

    I suspect that someone could well be China..

    Yep, oil from Iran paid for in Yuan.

    http://www.bbc.co.uk/news/business-17988142

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  7. hinamanu (2,352 comments) says:

    Ben Bernancke basically accuses congress of terroism if they audit the Fed

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  8. Monique Watson (1,062 comments) says:

    http://www.huffingtonpost.com/2012/12/31/fiscal-cliff-deadline_n_2389831.html

    SO they’ve adjourned. Looks like the cliff is missed

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  9. Manolo (13,357 comments) says:

    At the current rate of spending, the money collected by increasing taxes to the top 2% would keep the US government running for 8 days. So, it’s all a farce kept by the Messiah to satisfy his envious followers.

    The Kenyan is doing his worst to sow class war and hostility within the populace. They voted for him, they deserve him.

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  10. bringbackdemocracy (393 comments) says:

    Maybe they should just keep borrowing to pay for welfare like NZ does.

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  11. mikenmild (10,686 comments) says:

    I thought the borrowing was to pay for tax cuts, or roads, or something.

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  12. bhudson (4,734 comments) says:

    ^^ or something.

    Yes indeed – Working for Families and taxpayer-subsidised-student-loans

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  13. mikenmild (10,686 comments) says:

    Yep, all things that should be targeted more to those who actually need them. But borrowing at the present rate seems to suit the government, as it provides a ready excuse for not funding other stuff it hasn’t originated.

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  14. Manolo (13,357 comments) says:

    Yes indeed – Working for Families and taxpayer-subsidised-student-loans

    Wasn’t the former (WFF) something Janus Key called “socialism by stealth“, and the latter an expense NZ could not afford? Ah, the hypocrite PM.

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  15. Fletch (6,021 comments) says:

    Did you see obamas press conference? What an arrogant SOB. And this guy is supposed to be a leader? What a joke. Worst president ever.

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