"Fiscal cliff" clock ticks, political battle rages

Economy Congress Capitol fiscal cliff generic

Washington Last week began with high hopes of "fiscal cliff" deal-making but ended with the reality that both sides are galaxies apart. Now the negotiations enter another time-sensitive week, and with few illusions as to where each side stands. The talks are going to have to move a great deal before a compromise can be reached.

Play Video

"Fiscal cliff" negotiations continue

This week, negotiations are expected to continue behind the scenes between the White House and Republican leaders. In addition, President Obama has a meeting scheduled Tuesday with several governors -- including Govs. Scott Walker, R-Wisc., and John Hickenlooper, D-Colo. -- as well as a speech on Wednesday to the Business Roundtable where he will focus on selling his side of the debate, a task that Treasury Secretary Timothy Geithner was charged with on the Sunday political shows.

The public posturing picked up on Sunday television where it left off at the end of last week, with politicians attempting to sell their sides of the story while evading any semblance of willingness to budge on their respective stances. And time is running out. There is less than a month before a series of automatic spending cuts and tax increases are set to go into effect, which economists predict will be devastating for the economy.

In his appearances on all five networks' Sunday political shows, Geithner laid out the White House's position, just as he did during meetings on Capitol Hill last week.

"There's no path to an agreement that does not involve Republicans acknowledging that rates have to go up for the wealthiest Americans," Geithner said on CBS News' "Face the Nation."

For the Republicans, House Speaker John Boehner defended his offer, which he called serious, and flatly rejected President Obama's proposal. "We've put a serious offer on the table by putting revenues up there to try to get this question resolved. But the White House has responded with virtually nothing. They've actually asked for more revenue than they have been asking for the whole entire time," Boehner said.

• Despite GOP scoffing, Geithner holds firm on taxes
• Sen. Graham: "I think we're going over the cliff"

As far apart as Geithner and Boehner are, those are the current parameters: the GOP wants to extend all of the Bush-era tax cuts, which expire at the end of the year; the president wants to extend all but the cut for those making more than $250,000. In addition, the president's proposal would increase the estate tax to 45 percent. It's a plan that would total $1.6 trillion over 10 years, the White House says.

"The president is asking for $1.6 trillion worth of new revenue over 10 years, twice as much as he has been asking for in public," Boehner said Sunday. "It was not a serious offer."

Sen. Lindsey Graham, R-S.C., took the same position as Boehner and other Republicans who oppose increases to tax rates but are open to generating new revenue by limiting tax deductions. "I'll only do that if we do entitlement reform, and the president's plan when it comes to entitlement reform is just, quite frankly a joke," Graham, R-S.C., said on "Face the Nation."

The administration put forward a spending reduction proposal that is unacceptable to Republicans. In addition to $600 billion in cuts, which Geithner said includes minor changes to Medicare benefits for the wealthy in addition to reductions in farm subsidies, they pointed to $1 trillion of spending cuts Democrats agreed to support last year without any increases to revenue. Republicans laughed, literally.

"[T]hey wanted to extend unemployment benefits, they wanted a new stimulus program for infrastructure, they wanted to extend some other tax breaks," Boehner said of the White House's proposal. "And all of this stimulus spending would literally be more than the spending cuts that he was willing to put on the table."

Additionally, the White House wanted the ability to raise the debt ceiling without Congressional approval. "I've just never seen anything like it," Boehner added. "We're nowhere."

While the president's proposal -- minus a host of details regarding tax deductions and spending cuts -- is on the table, the Republicans' proposal is even more veiled. Geithner said Boehner needs to respond with an offer.

"[I]f they want to come back to us and say we'd like you to do this differently, do more of this, then they should lay that out for us," Geithner said.

Play Video

What are the consequences of the "fiscal cliff"?

When asked about specifics on "Fox News Sunday," including if he would propose eliminating the home mortgage deduction, Boehner told host Chris Wallace, "Listen, there are lots of ways to get out there. Now, I'm not going to debate his or negotiate with you."

As for spending cuts, Boehner, like the Democrats, looked to past Republican proposals. He said Republican ideas are laid out in the 2011 House budget drafted by Rep. Paul Ryan, R-Wis., which would make massive changes to Medicare and deep cuts to spending programs. It is a plan that did not get past the Senate.

Acknowledging the delicate dance that negotiators often plan when working to reach a deal, Geithner said he thinks a deal will be reached, but not before both sides play "a lot of political theater."

On CBS' "Face the Nation," economist Mark Zandi also sounded optimistic about both sides reaching a deal. "I think the political stars are aligned. The president has his legacy. He's a second-term president and I think he really wants to address this and I think the Republicans want to address it as well. So I think we'll get it together," he said.

Meanwhile, CBS News' political director John Dickerson pointed out the president feels like he is in a better position than Boehner. He won reelection running on raising tax rates on the wealthy and public polls suggest that Republicans would be blamed if a deal is not "You have Republicans trying to figure out their...place in the world," Dickerson said.

Despite the public gulf and the tough rhetoric from both sides, negotiations are still ongoing. And, as Zandi pointed out, the way this is all playing out shouldn't come as a surprise considering lawmakers are worrking with the politically-charged issues of taxes and entitlements while on a tight deadline.

"[T]hese are really big issues we're trying to nail down here," Zandi said. "It would be hard for me to believe that we could come to kumbaya over these issues.

"[I]f we nail this down - and...I think we will - we're going to be off and running."

[hhps3]

" public polls suggest that Republicans would be blamed"

American voters realized (or should have) that in re-electing the sitting President, there would be no compromising for the next four years.

The Fiscal Cliff is the legacy of those American voters who voted for another four years of "same old same old".

[DDeSanders]

All these different "plans" are just rearranging the deck chairs on the you-know-what, because the system is already designed on a deep level to marshall every real asset in the country (the world!) into the black hole of debt created by the banks and the political class for their own benefit.

While we fight each other over the remains, they will float above it no matter what.

[DDeSanders]

I wonder if anybody reads this stuff, or if it just gives us all some relief and busywork --
nothing changes...

[timchi1956]

Nor will it at least for four more miserable years.

[DDeSanders]

I wonder if anybody reads this stuff, or if it just gives us all some relief and busywork --
nothing changes...

[kevinforesthill]

When as Americans did we deciede that we would allow the richest men in our country write tax laws? We didn't do it for JP Morgan, We didn't do it for the Rockefeller's, and we didn't do it for anyone before them.....but now is the time that we should let the richest man in our country write our taxes?
You who think raising taxes on the rich will make them pay more taxes are being fooled. The rich avoid paying taxes and have around 40 years of tax loop holes (thanks to our government) and staffs of lawers to help them not pay taxes. Close loop holes if you want the rich to pay more, adopting a tax policy written by the rich will not help our debt or those struggling in this recession.

[AOCGUY]

chevyhotrod replies: Maybe you should give President Obama a call and ask him for everyone to start paying more, . .

tell you what chevy I will give him a call but he and I are in agreement that if you want more money you are just going to have to work harder.

[AOCGUY]

Hey chevy, I was right, spoke with my bud tonight and just like I said, you want more money you just have to work harder or smarter. Really, it's getting a little wearisome carrying you while you live on that gub'ment cheese.

[MMTdebtkiller]

The problem of the fiscal cliff is that if it goes off, taxes go up on everyone. Obama says average middle class family will have $2000 taken out of income next year. Further, there are the sequestered tax cuts that will cut deep into government spending, including deficit spending. Defense and Social Security will be hit equally hard. The drop in deficit spending will mean less new money is entering into circulation in the economy. That means less money to buy the same amount of goods and services. Prices will drop, companies will lay off workers because demand is dropping. People with debt set at higher values will have less money to repay their debt. They will go under. Lose their homes, possibly. We go into a severe depression.

All this because the GOP refused to raise the debt ceiling in 2011. It thinks there is a debt and we are going to be bankrupt if we don't stop going into debt by borrowing money for deficit spending. They refuse to allow more deficit spending. But it is all for nothing. There is no debt at the Fed. The Fed has already paid it off by buying the Treasury securities from the private banks that bought the securities using money it created out of thin air. The Fed is a branch of government. Acting for the government it has bought the securities, and paid off the debt in the process.

[kevinforesthill]

"All this because the GOP refused to raise the debt ceiling in 2011"

Did they? As far as i knew our congress has raised the debt ceiling every year since 1981?

(http://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis)

"The United States debt-ceiling crisis was a financial crisis in 2011 that started as a debate in the United States Congress about increasing the debt ceiling. The crisis ended when a complex deal was reached that raised the debt ceiling and reduced proposed increases to future government spending, although similar debates are possible for future budgets.......Four days later, on August 5, the credit-rating agency Standard & Poor's downgraded the credit rating of US government bond for the first time in the country's history"


GUESS YOU FORGOT ABOUT ALL THAT STUFF.......

[kevinforesthill]

"All this because the GOP refused to raise the debt ceiling in 2011"

Did they? As far as i knew our congress has raised the debt ceiling every year since 1981?

(http://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis)

"The United States debt-ceiling crisis was a financial crisis in 2011 that started as a debate in the United States Congress about increasing the debt ceiling. The crisis ended when a complex deal was reached that raised the debt ceiling and reduced proposed increases to future government spending, although similar debates are possible for future budgets.......Four days later, on August 5, the credit-rating agency Standard & Poor's downgraded the credit rating of US government bond for the first time in the country's history"


GUESS YOU FORGOT ABOUT ALL THAT STUFF.......

[MMTdebtkiller]

All this conflict that began with trying to raise the debt ceiling. Now it's raising taxes on the 2% . But Boehner says he will not allow a raising of the debt ceiling.

But there is no debt to begin with. It's already been paid off by the Fed.

When Congress deficit-spends, Treasury has to get money not available in tax revenues to cover the deficit. Treasury issues T-securities. These are sold at public auction to private banks and financial institutions. The Treasury uses the money from the sale to do deficit spending. Initially there is a debt obligation to the private banks that bought the securities. This debt is between the United States and the private party holding the security,

But along comes the Federal Reserve Bank (Fed) and buys the securities in order to replenish the reserves of the banks. It now holds the securities. But the debt obligation has been paid for the government. The Fed is a branch of the government. It buys securities with money it creates out of thin air, using Congress' power to coin money and set the value thereof delegated to it. It redeems the debt. So there is no debt for taxpayers to pay. The debt has been paid for the government by a branch of the government.

Check the Federal Reserves FAQ which says that it is a branch of the government.

[honestpatriot]

There are two flaws in your argument: (1) The Fed has not bought ALL of the U.S. federal government debt (only a small fraction, in fact), which is held by many others as well, from the central banks of China and Japan to countless private bond funds; and (2) the Fed buys these securities on the open market -- and sells them, too. It does not simply hold the securities and not resell or redeem them; it is a bondholder like other bondholders, with the primary difference being its ability and willingness to buy bonds in unlimited amounts and maturities of its choosing for economic policy purposes.

The essence of the story is that the $16 trillion debt is real, and ultimately has to be refinanced and repaid. But what most observers do not realize is that the size and dynamism of the U.S. economy make this debt, though large, less than catastrophic. Simply put, THE U.S. IS NOT GREECE, and anyone who suggests it is the next Greece is either manipulating you or has no understanding of economics.

[AOCGUY]

chevyhotrod says: I don't consider any debt reasonable. We should have a constitutional amendment to pay our debt every year.

You are living in a dream world chevy. The USA started out with debt and with the exception of one year about 200 years ago we have had debt ever since. Almost every business has debt as does almost every household in this nation. governments, businesses and people borrow to obtain things they need now but will need time to pay for. If no company ever borrowed money, there would be very few companies in this country. If no one ever borrowed to buy a home there would be no housing industry.

[Turbidite]

Why doesn't the U.S. Government take a leaf from the rebuilding of the French economy during the "30 glorious years" (1945-1975) largely under the guidance of Presidents DeGaulle and Pompidou? France had already fallen off the "fiscal cliff". They eliminated all foreign military actions (notably the long war in Algeria where the French withdrew and allowed Algeria to sort out its own affairs); they placed high tariffs on luxury items, imported goods (not afraid of trade wars).
The government intervened heavily in the economy, using five-year plans as its main tool under DeGaulle's economic advisors Jacque Rueff and Louis Armand. Great projects were launched such as the extension of Marseilles harbor (soon becoming number three in Europe), the promotion of the Caravelle plane (ancestor of Airbus), the expansion of the French car industry with state-owned Renault at its center, the building of the first motorways between Paris and the province, etc. French economy renewed with growth rates not accounted for since the 19th century. Germany followed the same economic plan after WWII and was able to repay their war debts before the British could repay their loans. Both the German and French economies surpassed the British economy during the years 1962-1964. AND conditions were much worse then than in the USA today (I was there).
If you are unfamiliar with this period of economic rebirth when the economy was in a shambles then I encourage you economic gurus to investigate these methods more thoroughly. The argument that things have changed simply doesn't hold up. These methods can and have been applied over and over to salvage a failed economy.