The Senate is back in town with very unhappy members who would rather be kicking back at home and who can blame them. Senator McConnell who really, really doesn’ t want to make a fool of himself a la Boehner and Plan B, keeps asking for a proposal from the President. I thought the President had made at least two proposals, but I guess Mitch doesn’t follow the new much. Meanwhile the House is called back into session on Sunday night. That is the night of December 30 a little more than 24 hours before the cliff. So what is going on here? Not being an economist, I can’t explain it all but I have found a couple of things this morning that have given me some things to think about as we play chicken with the deadline.
First is this handy chart from the New York Times from the Debt Reckoning blog.
It was posted last night with this explanation.
The deadline for resolving the pending fiscal crisis is less than a week away and, absent a breakthrough, spending cuts and tax increases on every income level will go into effect on Jan. 2. During their negotiations, President Obama and Speaker John A. Boehner have sought to keep tax rates at their current level for some taxpayers while letting them rise for high earners, but they have not agreed on where to set the income threshold. Mr. Obama has called for rates to go up on income above $250,000 (he later increased his offer to $400,000), Congressional Democrats have said they would agree to $500,000, and Mr. Boehner has called for a $1 million threshold.
So we aren’t talking about a lot of taxpayers here since the vast majority of us make under $250,000 in taxable income. As I understand it, none of these proposals would impact investment income. (Which as we have learned from Mitt Romney, is taxed differently.) But we do pay a lot more taxes than just income tax and if we go over the cliff, these will go up. Payroll taxes, business taxes, various tax credits like for child care, and unemployment insurance will all be affected.
The other thing I read this morning is from the Washington Post’s Wonkblog, They have put together a set of very helpful Frequently Asked Questions – with answers.
What is the fiscal cliff in one sentence?
Much too much austerity, much too quickly.
And since this is Ezra Klein and company, there are a couple of helpful graphs.
On or around Jan. 1, about $500 billion in tax increases and $200 billion in spending cuts (see table 1) [ above] are scheduled to take effect. That’s equal to about four percent of GDP, which is according to the Congressional Budget Office, more than enough to throw us into a recession
Next question: What matters most?
It’s important to recognize that the austerity crisis is a collision between deficit reduction and stimulus. The good news is that if you look at the various components of the fiscal cliff separately, you’ll see that the parts that do the most for deficit reduction do the least for the recovery, and vice versa. This suggests the possibility of “a la carte” approach to the fiscal cliff, in which we extend the most stimulative policies and wave goodbye to the most costly policies. And if you’re looking to go a la carte then here, via the Economic Policy Institute, is the menu.
I recommend that Senator McConnell take a look at this list and the chart showing the impact of various tax increase proposals, pull out his own calculator and make a proposal. Of course given the House and Senate rules, we will probably go over the cliff before anything can be passed.
- Reid Says Congress Lacks Time to Resolve Budget Talks (bloomberg.com)
- Obama, Senate head back to Washington as fiscal cliff deadline looms (cnn.com)
- Mitch McConnell Threatens to Kill Unemployment Benefits for 2 Million Unless He Gets Spending Cuts (politicususa.com)
- McConnell Pushed Into Fiscal Fight as Congress Faces Deadline (bloomberg.com)
- Obama, Reid, Boehner, Pelosi, McConnell meeting Friday: fiscal cliff deadlock (blogs.suntimes.com)