The cliff

The fiscal cliff, what will happen? Who will lose? Dems, GOP or USA?

They will put America first and reach a compromise.
1
3%
They will put America first and reach a compromise.
1
3%
They will make a deal at the very last second.
4
11%
They will make a deal at the very last second.
4
11%
The R's will be the winners: No tax increase.
0
No votes
The R's will be the winners: No tax increase.
0
No votes
The dems will be the winners: More tax for the rich
1
3%
The dems will be the winners: More tax for the rich
1
3%
They reach a deal that postpones matters, somehow.
6
17%
They reach a deal that postpones matters, somehow.
6
17%
They won't agree, but austerity is what the US needs.
0
No votes
They won't agree, but austerity is what the US needs.
0
No votes
They won't agree: Welcome to a new depression.
4
11%
They won't agree: Welcome to a new depression.
4
11%
Other (please specify).
2
6%
Other (please specify).
2
6%
 
Total votes: 36
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Glaucon
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The cliff

Postby Glaucon » Wed Dec 05, 2012 10:59 pm

In the US, the latest and hottest political issue is 'the fiscal cliff'.

Long explanation here:
http://bonds.about.com/od/Issues-in-the-News/a/What-Is-The-Fiscal-Cliff.htm

Bottom line is that if Whitehouse (Dem), Senate (Dem) and House of Representatives (Rep) don't agree, Austerity meassures will go into effect (because they agreed to those before when reaching another compromise so as to be sure that they would need to reach a further compromise on stuff later). Essentially it means taxes going up (for rich, poor and middle class) and lots of spending cuts (also on the US military, but across the board, really).

Economist predict that if this is happens, the US economy will take a hit of about 4 percent, changing a slow recovery back into a depression that might get quite deep. Everyone will pay, including the rich. Almost no one likes the idea, and the problem is pretty much a self-imposed one (because of that past agreement between parties that, in hindsight, might not have been such a great idea).

Really easy solution: the two parties simply have to agree, reach an agreement. Easy, right?

Well, nope. Because the US politics is so divided. They need to reach an agreement before the end of the year (the sooner the better, really), but so far, it is a stalemate. Democrats want an increase of tax rates for the rich, republicans don't, instead wanting to cut spending on 'social stuff', mostly. And it seems that neither side is willing to move.

So... let's predict what will happen... (also made a little poll).
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Anarch Allegiere
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Re: The cliff

Postby Anarch Allegiere » Wed Dec 05, 2012 11:07 pm

Glaucon wrote:Really easy solution: the two parties simply have to agree, reach an agreement. Easy, right?

Well, nope.


As a Belgian I'd expect that it would be REALLY easy for them to get to agreements in a two party system, compared to here where there are usually 5 to 6 parties bickering and fighting over everything.

US politicians aren't used to such a political climate in which compromise is heavily required for everything though I guess...
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Re: The cliff

Postby JackoS » Thu Dec 06, 2012 9:28 am

Glaucon

Reality is, it not only affects the US but the rest of the world. If the US machinery stops or goes in reverse, with the situation in China and Europe, the entire world will suffer.

Now if you ask me, what I think they will do is what they did last year. Fix a few things here and there and kick the can down the road a bit more. Which in fact isn't a bad thing.

This expense/debt crisis not only the US has, but most of the world too (though in different levels and versions) can't be solved in one single shot. It is the consequence over many decades of adding entitlements, and lowering taxes to compensate with them the lower rate of savings you were getting (which is normal, as people see that the government will give them more and more, they simply save less and less and spend more and more).

Taxes are nearly at all time low (both corporate and individual ones) and if you add the loopholes, really the tax system is a very low one compared with the rest of the world. Defense, you need all the other countries combined to match the US defense spending. Social Security and Health Care, have grown from being small expenses compared to GDP in the 60's to monsters that practically dominate 2/3 of the budget.

Unraveling this overnight is nearly impossible, because people firmly believe in God, America's great destiny and lower taxes, social security and health care for all. So the best course is to maybe raise a few taxes here, and lower some expenses there. And next year go back and do the same. And the other year again. Slowly, steadily, with very few really noticing. And in ten years, you revamped the entire fiscal system.
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Glaucon
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Re: The cliff

Postby Glaucon » Thu Dec 06, 2012 10:47 am

Anarch: Yes... it is rather funny. The US political system is set up in such a way as to often require plenty of compromises, while in Europe, politics is usually primarily balanced on the numbers in just a single body of representatives (the equivalent of the house of representatives/commons). And we have loads of parties, but... it seems to be easier, here... well... if we are NOT talking Belgium, at least. :)

@ JacoS: I agree, pretty much, though I am less optimistic about that much needed reform happening gradually, over the next decade. Even if the economy recovers (more quickly than it does right now), I think US politics (with it's focus on pleasing the voters rather than being honest to the voters about what needs to be done) WILL be lagging behind what it really should do in order to reform the taxation system, moderating spending and thereby working towards a somewhat balanced budget. I guess they will do SOMETHING, over the next ten years, though. But I agree with your prediction for this month.

My guess (and it little more than a guess, I really don't know for sure):

The republicans are rather scared of giving in much on the tax issue (even cutting some loopholes or setting a maximum for deductions, raising revenue a little that way, the sort of thing they do seem to be considering as an alternative to any increase in tax rates itself, is already leading to anger within their own party, anger with their militant base and raised eyebrows from the supporting billionaires that such a thing would impact directly).

But perhaps more importantly, if they do 'cave' and reach a compromise, they will give up some of their leverage, the axe they have over the neck of the democratic presidency, the fact that they can make his second term 'fail' big time by not playing ball. And if it is a choice between making Obama look bad and hurting the USA or finding a solution but letting Obama claim a victory, the outcome is predictable. But if they are seen as the ones that broke the recovery, it will reflect badly on them and might lose them the house in 2 years. Now they could count on their spinning machine to muddle the issue and make half of America think it wasn't their fault, but it is very risky. Yet, they don't want to give up their financial choke-hold, making themselves irrelevant on that issue, so... an outcome which will allow them to play the same game again, soon (some sort of postponement, just like the last time, with the fiscal debt thing) is probably what they will want to go for.

The democrats don't really want that, because this is the moment that the Bush tax cuts expire. They want to cash in on that 'advantage'. But I don't think they will be able to. They lost that fight the last time, really, when the republicans forced them to sign this deal. The problem for the democrats is that that they cannot play chicken as well as the republicans can, because they hold the presidency, and what happens will reflect more on them than on the other side.

So, I predic a token agreement, with some spending cuts, and some closed loopholes, the payroll tax cuts etc. extended, but set up in such a way that they can have the same sort of stalemate again in two months (a new debt ceiling thing) and again, beyond that. Repeated games of chicken. So, in effect, a WIN for the republicans in the form of a an agreement that is really a postponement.
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Aphris
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Re: The cliff

Postby Aphris » Thu Dec 06, 2012 3:43 pm

Anarch Allegiere wrote:As a Belgian I'd expect that it would be REALLY easy for them to get to agreements in a two party system, compared to here where there are usually 5 to 6 parties bickering and fighting over everything.

Yea literally fighting, I saw the wooden sticks at the KVHV headquarters in Leuven. Ready to knock some frog heads.
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Kaitlin
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Re: The cliff

Postby Kaitlin » Thu Dec 06, 2012 6:00 pm

Not sure why I avoided this thread other than not wanting to dive back into the political ring again.

I voted for postponement because I'm not optimistic enough to see this getting done by Christmas but ultimately the Dems will win on this issue. If nothing else they will do nothing and time takes care of the Bush era tax cuts assuming the passing of the middle class tax cuts continues to be blocked by House Republicans. This actually makes more sense to hold more cards when the real work has to be done early next year.

Ultimately I don't believe the highest rate will reach the level under Clinton but it will be raised along with capital gains and carried interest. Corporate tax rates will be lowered but I expect a lot of loopholes to be closed. As far as entitlement cuts the retirement age will likely be raised to 67 and there will be consolidation to trim down government spending. It is hard to read the tea leaves in regards to Medicaid/Medicare but I doubt Obamacare will be touched.

I'll bookmark this thread so I come back to it later and crow about being right.
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Re: The cliff

Postby Resolver Bouchard » Thu Dec 06, 2012 7:43 pm

I can see the rest of the world just moving on if America decides to go over the fiscal cliff.
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Glaucon
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Re: The cliff

Postby Glaucon » Fri Dec 07, 2012 7:00 am

@ Kaitlin: I guess both feel they have the upper hand in the negotiations, which makes the outcome so uncertain, because both expect to get their way (which is the main cause for failing negotiations even when participants WANT to reach an agreement). And if there is an agreement (even if it is mostly a postponement (like we all seem to think it will be), both side will claim it as a victory, I guess.

@ Resolver: If the worst thing happens and there is no agreement, it will likely impact those in the UK and the rest of Europe as well. At the moment, Europe is not doing that well (Germany is still okay, but there are many problems. Even the dutch posters here might be feeling them as Holland seems to be doing quite badly at the moment). China's growth has slowed. The expectations for the USA are/were more positive, which is/was helping the Global economy. If it moves back into a depression, that might be quite bad for the rest of the world (even for the London area). So, you can shrug your shoulders, if you are in a secure government job or something, but if not... it might even impact you.

I wonder how Pelo is doing, btw... is he still guarding Greece from those horrid Turks?
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Kaitlin
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Re: The cliff

Postby Kaitlin » Fri Dec 07, 2012 9:06 am

Glaucon wrote:@ Kaitlin: I guess both feel they have the upper hand in the negotiations, which makes the outcome so uncertain, because both expect to get their way (which is the main cause for failing negotiations even when participants WANT to reach an agreement). And if there is an agreement (even if it is mostly a postponement (like we all seem to think it will be), both side will claim it as a victory, I guess.


It really doesn't matter if they agree or not at this point. One thing is certain and that is the existing law is set to expire. I also don't buy into the argument the Bush era tax cuts alone will send the country back into a recession. That isn't what got us here in the first place. It is the same tax structure in existence during the most prosperous period in history.
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Glaucon
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Re: The cliff

Postby Glaucon » Fri Dec 07, 2012 11:25 am

Kaitlin wrote:It really doesn't matter if they agree or not at this point. One thing is certain and that is the existing law is set to expire. I also don't buy into the argument the Bush era tax cuts alone will send the country back into a recession. That isn't what got us here in the first place. It is the same tax structure in existence during the most prosperous period in history.


I'd say you are mistaken. It is not just about the Bush tax-cuts, it is about the payroll tax-cuts (benefitting middle and lower classes more than the rich, relatively) and about a whole lot of spending. This happening would be a Keynesian nightmare.

(Guardian:) To understand the danger we may – or may not – be in, it's worth recapping exactly what the fiscal cliff is. The fiscal cliff is a problem of Congress's own making, which is not to say it will be one of Congress's solving.

In 2011, Congress passed the Budget Control Act. It was the seed of what we now call the fiscal cliff. Here's what to expect: shortly after 1 January, unless Congress intervenes beforehand, we'll see two things happen: $100bn of automatic spending cuts, along with the demise of a batch of tax cuts that have been a crutch for the weak economy – the Bush-era tax cuts that have kept taxes low for eight years; and Obama's 2% payroll-tax holiday.

Each of these separately – tax hikes or spending cuts – would not be enough to dent the US economy by much. But together, the spending cuts and the tax hikes are enormous. The Committee for a Responsible Federal Budget and the Congressional Budget Office both expect that a recession would immediately follow if Congress does not address the fiscal cliff.

The spending cuts, for instance, will add up to $100bn pulled out of the economy by the government, in everything from the defense budget to Medicare. The idea is to reduce the federal deficit by $1tn over 10 years. The tax hikes will return tax rates to what they were before 2003, which means the top tax rate for households could be over 39%, according to press reports.

http://www.guardian.co.uk/commentisfree/2012/sep/17/america-falls-off-fiscal-cliff

One of the problems seems to be that while economists (including the official institutions work for the government) see this as a major danger, democratic politicians don't see it as great or don't want to see it as such, because there is a prize dangling in front of them: the expiration of those Bush Tax cuts they dislike so. That seems to be their mode of thinking (according to the article I quoted and some others I read), and it seems to be the one your's as well.

And yet, however nice it would be to 'win one' over those ebil republicans (and falling off the cliff would 'hurt' the republican agenda more than it would hurt the democratic one, because it WOULD mean both spending cuts and tax increases, the thing democrats argue for and the biggest cut would be on military spending), the outcome of falling off the cliff would really be quite bad for the democratic agenda as well. Mutual destruction can be quite a dangerous thing if one side feels that it has an advantage because the other side will be 'destroyed more' than they will, and if they seek to 'cash' in on that advantage, especially if that other side is under the partial control of activists wandering BS mountain.

If I understand things correctly, it is not a myth. They really need SOME sort of deal to keep the US from falling over the cliff.

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