The Fiscal Cliff Deal

Good evening everybody and welcome to In the News.  Glad you could be with us again today.  I’d like to start by wishing you all a very Happy New Year.  And wish you a safe and successful 2013.  And to thank you for being part of our show.  We look to forward to another great year of keeping you informed and bringing you the stories that matter most and the stories that stand to have the biggest impacts on you and your family.   

And we’d like to start today by talking about the Fiscal Cliff.  It’s the story that’s been dominating the headlines over the past couple of weeks.  And an agreement was finally reached last week when the House voted to pass an agreement that was passed by the Senate just a few hours earlier.  So by doing so Congress prevented tax rates from going up on all Americans, and across the board spending cuts from going into effect, that many believed would have a negative impact on the economy.  Many believed going over the cliff would risk another recession.

And so the immediate crisis has been averted.  But the votes came down to the last possible moment.  Actually if we want to be very accurate about it, the vote actually came down past the deadline and we were technically over the cliff for a day.  But in the end, the bills got passed and we have been moved back off the cliff for the moment.

And I say for the moment because even through the immediate crisis has been averted, the agreement that was reached if you want to call it an agreement, only addressed one aspect of the cliff while postponing the other one.  And because it was done that way, it actually sets up another cliff about two months from now.  And if you can believe it, that one will be an even bigger cliff.  But for now, there’s a tiny bit of certainty that has been provided.  And I guess that’s a good thing.  So let’s go over some of the details of the deal and where it leaves us.

You’ll recall that the Fiscal Cliff was basically a combination of two major components.  First it was the expiration of major tax cuts that had been passed over the past 10 years.  Secondly it was the enactment of major (billions of dollars worth) of across the board spending cuts that were set to go into effect as a result of the debt ceiling debate (deal) that took place last summer.

The fear was, both of these aspects going into effect at the same time would have an adverse effect on the economy.  Because you would have widespread tax cuts expiring, and so taxes would increase on just about every American.  And you would have these massive spending cuts that affected just about every segment of the government go into effect.

And so that fear was sucking that much money out of the economy at one time could impact what is already a weak recovery and could even plunge the economy back into recession.  So a deal was necessary in order to help prevent those things from happening.

And the deal that was passed did just that, to a certain degree.  It dealt with the tax aspect of the cliff, but it basically postponed the decision on spending cuts for 2 months down the road.  Let’s talk a little bit about what the deal does.  The deal extends the expiring tax cuts for everyone making less than $400,000 a year.  In fact it makes them permanent, so we won’t have to deal with another issue like this for the foreseeable future.   

For those making more than $400,000 a year, tax rates revert to Clinton era levels.  So that’s basically an increase from 35% to 39.6%.  The plan would also raise estate taxes on estates larger than $5 million.  Those rates would go from 35% to 40%.  The plan also extends unemployment insurance for one year.

What the plan does not do is label any spending to be cut.  It puts off the spending cuts that were scheduled to happen for about 2 months.  Now what’s the significance of that?

Well, it actually postpones the spending cuts to a time where the debt ceiling will once again need to be raised.  And it will also be right around the time Congress needs to pass a new budget for the federal government.  So it averts the cliff that was supposed to happen now, but sets up an even bigger cliff for them to deal with 2 months from now.  And that one has the potential to make what we just went through look like a picnic.

Now immediately of course there was reaction on both sides to the deal.  And to no one’s surprise both sides were displeased.  Republicans didn’t like the deal because it didn’t address spending cuts.  They felt the President got the tax increases he wanted but failed to deliver any spending cuts that Republicans had been asking for.  They say the plan does nothing to address the major drivers of our national debt, namely the major entitlement programs, Medicare, Medicaid and Social Security.

Democrats also didn’t like the deal.  They’re complaint was that the president once again caved in to Republican intransigence.  They argue for example, that the revenues he got were not enough.  They point out that the revenues in the deal basically amount to $600 billion over 10 years.  But Speaker John Boehner had already offered as much as $800 billion in new revenue in his initial offer.

So neither side was happy with the bill.  But it did pass both chambers of Congress and so the crisis has been averted for now.  But in no way should Congress be proud of its behavior during this crisis.  The failure of Congress to come to any type of agreement on this issue right up until the last minute is really an embarrassment.

We’ve known that this issue was coming for months.  There was nothing that was known on New Year’s Day, when the bill was passed, that wasn’t known a day after the election.  Why does it always come down to the last minute?  You know, I saw a stat the other day that said that this past Congress was the least productive Congress in our nation’s history.  It got the least amount of work done than any Congress we’ve had in over 200 years.

We’ve still got high unemployment, we’ve got a crushing national debt in this country, our education system is broken.  The list goes on.  Does this country seem like it’s in such good shape that our leaders can just leave it on cruise control?

I hear some commentators out there say well, this is the way Democracy is supposed to work.  It’s supposed to be divided.  It is supposed to be divided.  But this isn’t divided.  This is dysfunctional.  And there’s a difference.

We’ve got real problems today.  And our leaders have to get serious about the work they were elected to do.  Both sides have to understand that they are not going to get 100% of what they want.  They have to be satisfied with getting some of what they want.  The only thing the American people demanded in this last election was progress.  Our elected leaders have to keep us moving forward.  That’s the only thing they will be judged on, and it’s the one thing all Americans agree on.

That’s our show for tonight.  We hope you enjoyed it.  Please drop us a line at comments@itnshow.com and let us know your thoughts on the subject.  And remember to keep up with In the News on both Facebook and Twitter at itnshow.  That’s itnshow, one word. 

Thanks for tuning in everybody.  And we’ll see you next time.  Good night.