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Cliff jumping: President, Congress still seeking compromise, local professor puts Fiscal Cliff into perspective
By Marthe Stinton, mstinton@starlocalnews.com
Now that the election has passed and government officials are putting their noses back to the grindstone, questions are still circulating about what the nation will face in the coming months regarding the fiscal cliff.
During a press conference on Nov. 9, President Barack Obama said if Congress fails to come to an agreement on an overall deficit reduction package by the end of the year, everyone's taxes will go up Jan. 1, including the 98 percent of Americans who make less than $250,000 a year.
"We face a very clear deadline that requires us to make some big decisions on jobs, taxes and deficits," he said at a different press conference five days later. "I believe that both parties can work together. We should not hold the middle class hostage while we debate tax cuts for the wealthy."
"I'm committed to solving our fiscal challenges," Obama said during the Nov. 9 press conference. "But I refuse to accept any approach that isn't balanced. I am not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me, making over $250,000, aren't asked to pay a dime more in taxes. I'm not going to do that."
Congress and the president could cut a temporary deal, which could increase uncertainty in the market and be a bad idea, said Matthew Eshbaugh-Soha, a political science professor at the University of North Texas.
What does that mean for the average North Texan?
"Local residents will be affected in many ways -- just look at what will be cut and draw your own conclusions," Eshbaugh-Soha said. "Take defense: we have defense contractors in the DFW area. If there is a fiscal cliff, then there will be fewer jobs for defense contractors. And people's taxes will go up, so they will spend less."
If Congress and Obama fail to reach an agreement by the Dec. 31 deadline, a $7 trillion total tax hike based on increase rates and spending cuts will go into effect Jan. 1.
Eshbaugh-Soha said North Texans wouldn't see the effects immediately since the spending cuts and tax increases will roll out gradually. Businesses and the stock market will adjust their expectations, which could hit hiring and 401Ks, he said.
"The cliff will involve tax increases, which means less money in people's pockets; it will mean cuts in discretionary spending, which means that people will have fewer services that they expect to have," Eshbaugh-Soha said. "Is it the end of the world? No. The economy will undoubtedly slow down, unemployment will likely increase, and people, generally, will not like it. But the deficit will be reduced considerably."
During the Nov. 14 press conference, Obama said he doesn't expect Republicans to adopt his budget.
"That's not realistic," he said. "So we're going to have to compromise."
But Rep. Michael Burgess said Speaker of the House John Boehner has had no meetings with the president since Election Day.
"This is a problem," Burgess said. "The president is going to have to lead on this, as the Speaker of The House pointed out, and we are all anxious to see what he is going to propose."
During Obama's campaign, Burgess said, he wanted to tax the top 2 percent of wage earners, but felt the President's idea won't eradicate the problem.
"You will get enough to probably pay for the federal deficit for a week or 10 days, two weeks at the most, then you're right back into the soup," Burgess said. "What we have seen out of the president so far has been pretty disappointing."
In July of this year, the House passed a bill that extended the current tax rates for an additional year to give whoever was elected an opportunity to deal with fundamental tax reform.
"To just give in on taxes on upper income earners, then sure, that may feel good politically, but at the end of the day, you haven't moved the needle on the problem," Burgess said. The problem is the federal deficit and federal spending. So the concept of achieving a bigger solution is a good one. I think the Speaker of The House is on exactly the right track here but he can't do it by himself. The president is a big part of this and is going to have to put something on paper, put something on the table."
Regardless of whether the tax cuts end, the fiscal cliff proves disastrous, or Congress and the President continue the stalemate, Burgess said there are some tax increases most Americans are forgetting.
"There is a tax fixing to kick in on Jan. 1 -- and this is in the president's health care law -- the 3.8 percent tax on upper income earners for dividends and capital gain," he said. "That's a real tax, that's a real hit that's coming Jan. 1 of this year, and it's already starting to affect behavior, which changes in the tax code always do."
Burgess said those taxes are coming in on the heels of everything else in this recession and the health care taxes are having a depressive affect on job creation.
The House also took a proactive approach to the sequester and passed a bill in May that reapportioned some of the cuts. There are two big solutions sitting out there and waiting for action in the Senate, Burgess said.
"The house is active," Burgess said. "We have put our best deal forward. Unfortunately no one has talked to us on the Senate side -- that the president is leading. It's very hard to get anything done."
It would be to the House, Senates and president's advantage to do the work at the committee level, Burgess said.
If Congress and the President fail to reach an agreement by the Dec. 31 deadline, the existing tax policy expires.
"So if nothing happens, then something big happens and that is taxes go up on everyone, and federal spending on both the defense and domestic side will be cut by 7-8 percent across the board," Burgess said. "Some pretty drastic measures. That's why, at some point, I think people will start talking and negotiations will pick back up.
"I do believe something will be done because the consequences of inaction are pretty severe. These are tough decisions ahead and I know people are focused on them. The fact is that we have to work with what we have to work with and that work is ongoing now and has been for the past year on the House side."
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