This seems to happen every year. Like the eternally appending storyline of a dumb horror film franchise, the much-anticipated “Fiscal Cliff” hit network headlines with the same freight-train furor as its blockbuster prequel, “Debt Ceiling.” Bigger. Badder. This time, it’s personal.
The “Fiscal Cliff” storyline sounds eerily familiar. Last year, Congress was ensnared in a months-long deficit standoff where financial crisis became so imminent the nation’s credit rating was downgraded. During a weird spat of partisan bickering that resembled more performance art than political maneuvering, Republicans began delivering a clap-trap “no” for every Democrat spending request, until Obama became the one who wanted to cut taxes while House Republicans actually voted down payroll tax cuts for the middle class. Thankfully, tempers cooled long enough for a compromise to be reached, and the U.S. ultimately avoided default when Congress agreed to raise the U.S. debt ceiling and keep the middle class cuts while slashing a severe amount of government spending that will affect more than 1,000 government programs.
Fast forward to 2012. Many of those big spending cuts proposed during “Debt Ceiling” — about $500 billion worth — are set to begin automatically in January. Concurrently, a number of tax benefits for businesses are set to expire, and the onset of taxes related to the Affordable Care Act are going to kick in later in the year. Also: those Bush-era tax cuts on the wealthy are also set to expire in January, and Democrats want to take the opportunity to raise taxes on that group if they’re going to agree to those deep spending cuts. If an agreement isn’t reached, the cocktail of higher taxes and austere cuts could bump unemployment numbers back up, knock our GDP down as much as 4%, and as a result, our economy could steer back into the doldrums of another recession.
Predictably, Republicans want to slash spending but don’t want to raise taxes on the rich. Democrats want to raise taxes on the wealthy but want to curb spending cuts. Obama’s bargaining chips include a plan to close loopholes, to limit a few deductions, and of course, to return tax rates for wealthy Americans to pre-Bush levels that, along with several other tax measures, he claims would bring $1.6 trillion in new revenue. He also has some new spending ideas in mind: he wants to extend the middle class payroll tax cuts he began during “Debt Ceiling,” he wants to extend unemployment insurance benefits, and he has a new home mortgage refinancing plan to aid our ever-disappointing housing numbers. Oh, and he has plans for another stimulus. Yes, another stimulus.
Not surprisingly, Republicans are saying “no” all over again: “no” to the stimulus, “no” to the unemployment insurance benefits, and of course, a big, resounding “no” to those pesky tax hikes for the wealthy (oops, I mean “job creators”). Last year, many Republicans even signed a “pledge” promising they wouldn’t budge from party lines on the tax hike issue, even in the event of economic disaster: a cliff, or any other foreboding figurative precipice otherwise. Now many of these diehards (like Americans for Tax Reform founder Grover Norquist) are making veiled threats to fellow party members should they jump ship on this issue for the sake of reaching a deal. Instead, Republicans want deeper cuts to Medicare and other entitlement programs. They want to close more federal loopholes. And just like last year, they’re now holding the middle class tax cuts hostage — which will affect an estimated 98% of Americans and could hit working class pockets by an average of $2,000 over the course of the year — until Democrats budge on all of the above.
Here’s my quick-capsule prediction for how “Fiscal Cliff” will ultimately end (spoiler alert ahead): Just like last year, Congress will make a decision in the eleventh hour. And just like last year, they’ll agree to the bulk of those spending cuts, they’ll agree to extending the middle class payroll tax cuts, and they’ll probably agree to continuing our tradition of giving tax breaks for the wealthy. In other words, they’ll just kick the can further down the road, ignoring our chronic economic behaviors for the sake of averting disaster, more short term solutions for long term problems. Congress would be remiss not to act on this crisis, but they wouldn’t be Congress if they did something that actually brought about real change. The good news: next year, when the bump in the carpet catches up with the vacuum, the media can assign another asinine title like “Deficit Storm,” “Fiscal Blitzkrieg,” or “Economic Holocaust: the Revenge,” and our needless fretting about the economy can start all over again.
Ever get the feeling we’re seeing the same story twice? This plot hasn’t thickened. It’s only spoiled.