Fiscal Cliff 2012

This LSW page provides a look at how the new Obama administration will behave post-election victory with reference to the fiscal cliff.

The LSW page, Fiscal cliff 2012 – after the deal, provides a look at the agreement made by Obama administration and Congress to deal with some the issues dwelling in the term ‘fiscal cliff’.

The term fiscal cliff refers to, as Paul Waldman explains, “two sets of changes that are scheduled to begin at the start of 2013. The first involves changes to the tax code: The Bush income tax cuts will expire, bringing rates back to where they were during the Clinton years, and so will the payroll tax cuts enacted as part of the 2009 stimulus package and later extended. The second set of changes is the “sequester,” under which a series of rather dramatic cuts to government spending will take place”

Simon Johnson says “you will hear numerous voices – definitely on the right but also on the left – arguing that we could not possibly increase taxes this year or next, as this will push our economy back into recession. Do not believe them – this is just the latest disinformation put out by people who agree with Grover Norquist that the real goal of politics should always and everywhere be to reduce taxes and shrink the size of government. It is exactly such policies that have brought us to our current economic
predicament.”

The Bush tax cuts will expire, the Obama payroll tax cuts will expire, major cuts in military spending will kick in and some say that the economy will keel over into a recession. Nonetheless there many, including the above mentioned Johnson and Waldman as well as Paul Krugman , and, among others, Bob Kuttner who says, among other things:

Republicans are holding out for extending all of the tax cuts. But if they refuse to pass Obama’s proposal of extending the cuts for the bottom 98 percent, the calendar works in Obama’s favor. As Sen. Patty Murray proposed, Democrats can let all of the tax cuts expire on schedule, then challenge Republicans to join them in supporting a break for all but the wealthiest 2 percent.

The $600 billion in defense cuts scheduled if the sequester goes off also gives progressives a huge tactical advantage — again, if Obama is prepared to play hardball. Democratic military hawks will scream, but Obama can challenge Republicans to support a reasonable budget. If not, let the military cuts start happening.

As several people say, the President should stand his ground, raise taxes on the over ¤250 000 dollar crowd, cut the Pentagon’s budget, keep corporate Dem and Republican hands off Medicare, Medicaid and Social Security.

An NPR(showing, amazingly enough, a bit of backbone) story cites William Gale, co-director of the Tax Policy Center, “”If we do go over the cliff, lawmakers will be on a budget path that deals with the deficit quite well over the medium term and the long term,” Gale says.

That’s because there would be a huge amount of revenue added to the budget if the Bush tax cuts expire. That would reduce the deficit significantly. The same goes for the cuts in domestic spending, including defense, that are part of the fiscal cliff. Those cuts would also substantially trim projected deficits for years to come.

“Going over the fiscal cliff does the dirty work that Congress has so far been unwilling to do,” Gale says.

He thinks Congress would quickly tidy up the dirty work.

If lawmakers don’t like the indiscriminate across-the-board cuts in defense spending or the national parks or Amtrak, he says, they could be renegotiated early next year”

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Nov. 14: More clarity on the ‘fiscal cliff’