Michael S. Derby writes about the looming fiscal cliff:
The central problem is the lack of change. President Barack Obama was reelected. Democrats retained control of the Senate, while Republicans held on to the House of Representatives. The fiscal cliff can only be resolved if lawmakers work together. “Returning to status quo likely means all sides see the voters as supporting their views, which means reaching compromise is not likely to get any easier,” economists at Bank of America Merrill Lynch warned clients.
Speaker of the House John Boehner (R-Ohio) says “the Republican majority in the House stands ready to work with [the President] to do what’s best for our country.” Republicans appear willing to accept additional tax revenues but their emphasis is on reforming entitlement programs and curbing “special interest loopholes and deductions”.
The Congressional Budget Office summarizes the fiscal cliff as:
Among the policy changes that are due to occur in January under current law, the following will have the largest impact on the budget and the economy:
- A host of significant provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Public Law 111-312) are set to expire, including provisions that extended reductions in tax rates and expansions of tax credits and deductions originally enacted in 2001, 2003, or 2009. (Provisions designed to limit the reach of the alternative minimum tax, or AMT, expired on December 31, 2011.)
- Sharp reductions in Medicare’s payment rates for physicians’ services are scheduled to take effect.
- Automatic enforcement procedures established by the Budget Control Act of 2011 to restrain discretionary and mandatory spending are set to go into effect.
- Extensions of emergency unemployment benefits and a reduction of 2 percentage points in the payroll tax for Social Security are scheduled to expire.
The CBO estimates that increases in federal taxes and reductions in federal spending, totaling almost
$500 billion, will cause a 0.5 percent drop in GDP in 2013.