Cliff Notes

UPDATE 7-23-2014: I wrote this more than a year and a half ago, and since then we have tumbled over the cliff and clawed our way back up, at least as far as Congress would let us. I obviously underestimated the extremes that the Republicans in Congress were willing to go to in order to keep Obama from actually accomplishing anything. In short, they were (and are) willing to let America go to financial hell if it keeps Obama from being able to claim an accomplishment. Frankly, I never thought that the Republican-dominated House would ever allow America to fail in order to keep Obama from succeeding. My bad.

Ironically, when I said, "Certainly, going 'off the cliff' would be worse for the Republicans than the Democrats" I was, I believe, right. As I see it, the Republicans weren't just willing to let us go over the cliff, they were actively pushing us over the precipice. And everyone saw them do it. And everyone knows they did it. Except, of course, the Republicans, who see letting America fall into a financial Grand Canyon as their greatest accomplishment. 

But that's all my opinion. What is fact is that may of us thought that the "fiscal cliff" wouldn't be all that bad, and we were wrong. I think we were all engaged in a little political fantasy that would, it was hoped, keep the Republicans from making a terrible mistake that America would have to pay for. In this, we would appear to have grossly over-estimated them. And any general will tell you that over-estimating your foe is an amateur's mistake. That so many of us made the same mistake makes me feel no better about being wrong.

I am sick of hearing about this "fiscal cliff" thing. I am so sick of hearing about it I want to find it and throw myself off it. But everyone seems so scared of going over the damn thing that they haven't asked themselves just what the hell a "fiscal cliff" is.

So if no one else is going to ask, I will: What is the fiscal cliff, and should I worry about what's at the bottom?

Midnight in the Garden of Good and Evil

At Midnight on December 31 three things happen:

1. Certain "temporary" tax cuts expire. These include a 2% tax cut to workers and certain tax breaks for business, as well as the end of the tax cuts enacted during the Bush II administration in '01, '02 and '03.

2. Deep spending cuts go into effect. Most of these were part of a debt ceiling deal struck in 2011. Congress (both houses) could have avoided these cuts by agreeing to a balanced budget amendment to the Constitution. They didn't.

3. Taxes related to Obama's health care law kick in. Most people, however, have no need to panic. Actually, no one has a need to panic except the very rich (who can afford to hire people to panic for them); according to the Christian Science Monitor, "...this increase will mainly hit high-income Americans..." who have "...historically paid much lower tax rates than many middle-income Americans."

It should also be noted that "the cliff" includes deep cuts to a great many non-social programs, including cuts to defense. All of this means that many programs, including any near and dear to Republican hearts, will suffer deep automatic cuts on Day One of 2013. It also means that such cuts will have their intended effect...they would significantly reduce the Federal budget.

"Give me a leverage and I shall move the world!"

In Washington these days, it's all about leverage. Ironically, both sides think that the looming "Fiscal cliff" gives them leverage. They both think that the threat of forcing the country "off the cliff" means that they can dictate that the other party resolve issues on their terms.

Many Democrats simply don't believe in the fiscal cliff. They're already calling it the "fiscal curb" or "fiscal mole hill." Republicans see it as an imposing precipice with all the fires of hell at the bottom. They're both right, from they're own points of view.

(Certainly, going "off the cliff" would be worse for the Republicans than the Democrats. There are signs that the public, most of it anyway, would be ready to blame them were we all to fall from "the cliff.")

The "fiscal cliff" came about for two primary reasons. First, because the tax cuts from the GWB era were set to expire now, when GWB was safely out of office. (Coincidence? I think not!) Second, because Obama, to get certain reforms through a bitterly divided Congress, allowed many of his new reforms to be deferred until his second term, and since the Republicans never actually believed he'd have a second term and anything he fathered could be aborted (who says Republicans don't believe in  abortion?).

So the Republicans, thinking that they'd never have to deal with the cliff, didn't deal with the cliff. And the Democrats, who never really believed in the cliff, have had less incentive to avoid it.

Taxing issues

If the question of the impending tax changes could be resolved, the rest should be easy. (It should be, but won't be.)

Obama's position is that we should cut taxes for all Americans right now; for the 2% or so who make over $250K annually, their first $250K would be taxed at the same rate as everyone else and any income over $250K would be taxed at a higher rate. In other words, everyone gets a tax cut now on all income up to $250K; if you make $250,001 you would pay a higher rate on $1 and that rate has yet to be determined (and don't imagine that debate would be over quickly).

The Republican position is that everyone should get the same tax cut right now, no higher rates for extremely high incomes. (Well, it's not quite that simple; the Republicans also want deep cuts, if not outright cancellation, of programs like Medicare, Medicaid, and Social Security. The Democrats are dead set against devastating social programs so...well, devastatingly.)

Conclusion

It comes down to this: the Republicans have more to lose from going over the cliff because they perceive it to be a cliff. The Democrats have less incentive to avoid the cliff because they don't think it will be so bad.

My own opinion: with regard to taxes (and that's what most people are worried about), don't worry about it. If you're making less than $250K you don't need to worry; the tax increases aren't that big and politics being what it is you'll probably get another tax cut before it comes due. If you're making more than $250K you don't need to worry, because YOU'RE MAKING MORE THAN $250K, NIMROD!

As for the larger issues, I suppose it depends on where you already stand. Personally, I see "going over the cliff" as difficult but not that dangerous. It's more a matter of politics than economics, anyway. The real difficulty is the across-the-board tax and spending cuts that will go into effect, and isn't that what Republicans are always howling for? (Except that the "automatic cuts" include deep cuts to military and defense spending...a notion that the GOP hates.)

I think that the "fiscal cliff" is more of a wall, a wall with an enormous "STOP!" sign painted on it, a wall that in spite of that sign Republicans have continually accelerated toward. If Humpty Dumpty were sitting on that wall, the Republicans would be milling around nervously at it's base with all the Crazy Glue they could carry.

Can I get an omelet?

The Blues Viking

The opinions here expressed are mine and if you don’t like them you can get your own damn blog.

Fiscal Cliff definition (Investopedia)

What is the Fiscal Cliff? (About.com)

An Extremely Simple Explanation of the 'Fiscal Cliff' (US News and World Report)

There Are Worse Things Than going Over the Fiscal Cliff (US News and World Report Opinion)

Public ready to blame Republicans if fiscal cliff talks fail (Daily Kos)

Is the Obama health-care law a huge tax increase? (Christian Science Monitor)