Best of the Week
Most Popular
1.Gold Price Crash Through Key Support, Crude Oil in Freefall - Clive_Maund
2.Marc Faber Warns Japan's Bond-Buying Program is a Ponzi Scheme - Bloomberg
3.Silver Price and Powerful Forces - DeviantInvestor
4.Stocks Bear Market Catastrophe as Stocks Flash Crash to New All Time Highs - Nadeem_Walayat
5.Marc Faber Warns Not to Hold Any Gold in the U.S. - GoldCore
6.U.S. Housing Market San Francisco at Critical Mass - Harry_Dent
7.Global Scramble For Silver - Coins “Hard To Get,” “Premiums Likely To Jump” - GoldCore
8.Major World Stock Market Indices Analysis: SPY, QQQ, DAX, FTSE, CAC, HSI - Michael_Noonan
9.Japan's kaput?! - Axel_Merk
10.Tesco Empire Strikes Back, £5 off £40 Discount Voucher Spend Explained, Exclusions Warning! - Nadeem_Walayat
Last 5 days
Investors Hated Gold at Precisely the Wrong Time: What About Now? - 22nd Nov 14
Gold and GLD ETF Selloff - 22nd Nov 14
Currency Wars, the Ruble and Keynes - 21st Nov 14
Stock Market Investor Sentiment in The Balance - 21st Nov 14
Two Biotech Stocks Set to Double on One Powerful Catalyst - 21st Nov 14
Swiss Gold Poll Likely Tighter Than Polls Suggest - 21st Nov 14
Gold's Volatility and Other Things to Watch - 21st Nov 14
Australia Stock Market and AUD Dollar Analysis (ASX200 and AUDUSD) - 21st Nov 14
New Algae Research May Have Uncovered an “Energy Forest” Under the Sea - 21st Nov 14
The Cultural and Political Consequences of Fiat Money - 20th Nov 14
United States Social Crisis - No One Told You When to Run, You Missed the Starting Gun! - 20th Nov 14
Euro-Zone Tooth Fairy Economics, Spain Needs to leave the Euro - 20th Nov 14
Ebola Threat Remains a Risk - New Deaths in Nebraska and New York - 20th Nov 14
Stock Market and the Jaws of Life or Death? - 20th Nov 14
Putin’s World: Why Russia’s Showdown with the West Will Worsen - 20th Nov 14
Making Money While The World Burns - 20th Nov 14
Why This "Quiet Zone" Is Now Tech Stocks Biggest Profit Sector - 20th Nov 14
My Favorite Stock McDonalds Just Got Kicked Off My “Buy” List - 19th Nov 14
European Economies in Perpetual State of Shock, What's Scarier Than Deflation? - 19th Nov 14
Breakfast with a Lord of War and Nuclear Weapons - 19th Nov 14
The U.S. Economy’s Ebb and Flow - 19th Nov 14
What You Need to Know Before Investing in Alibaba - 19th Nov 14
Forget About Crude Oil Price Testing 2009 Low - 19th Nov 14
What Blows Up First? Part 5: Shale Oil Junk Bonds - 19th Nov 14
Bitcoin Price Did We Just See an Important Slump? - 18th Nov 14
How to Profit From Oversold Crude Oil Price - 18th Nov 14
Stock Valuations Outrunning Profits Growth - And the Band Played On - 18th Nov 14
ECB Buy Gold Bullion? Japan's Monetary Policy Dubbed "Ponzi Scheme" - 18th Nov 14
Gold, Silver, Crude and S&P Ending Wedge Patterns - 18th Nov 14
How High Could USD/JPY Go? - 18th Nov 14
On Obama and the Nature of Failed Presidencies - 18th Nov 14
Globalism Free Trade Immigration Connection - 18th Nov 14
An Epiphany From Hell - Buy Gold and Silver - 18th Nov 14
Too Difficult to Get a U.S. Home Loan - 18th Nov 14
Has the Gold Bear Trap Been Set - 18th Nov 14
Gold Price and Miners Soar on Huge Volume - 17th Nov 14
Cameron Says Second Global Economic Crash is Loomin, Japan in Recession - 17th Nov 14
How to Play the Stock Market 2014 Year-End Rally - 17th Nov 14
What The Fed Has Wrought, Who Needs Wage Earners Anyway? - 17th Nov 14
Stock Market Indexes Fluctuate Along Record Levels - Will Uptrend Continue? - 17th Nov 14
Stock Market Trend Deceleration Tends To Precede Corrections - 17th Nov 14
Stocks Bull Market Set to Continue After Consolidation - 17th Nov 14
The World Is Run By Fools, And We Let Them - 17th Nov 14
Gold Price Golden Bottom? - 17th Nov 14
Gold Dragons Grand Strategy - 16th Nov 14
Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - 16th Nov 14
Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - 16th Nov 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Dramatic Stock Market Selloff

What is the “fiscal cliff”?

Politics / Government Spending Nov 16, 2012 - 08:31 AM GMT

By: Global_Research

Politics

Best Financial Markets Analysis ArticlePatrick Martin writes: The term “fiscal cliff,” first used by Federal Reserve Chairman Ben Bernanke last February, refers to the simultaneous expiration of tax cuts and imposition of spending cuts on January 1, 2013.

The American media has seized on the term “fiscal cliff” and promoted it, in part, to suggest that measures which would otherwise be enormously popular—ending the Bush tax cuts for the wealthy or cutting military spending—are threatening, even dangerous.


The main purpose of the media propaganda about the impending “cliff” is to create a sense of financial emergency and override popular opposition to measures the Obama administration and congressional Democrats and Republicans will put forward to avert it, including sweeping cuts in Medicare, Medicaid and Social Security.

This is bolstered by the reaction in the financial markets, where a sharp sell-off could well serve as a political club to ensure that the policies demanded by Wall Street are adopted in Washington.

Far from an emergency that requires dramatic action to slash the federal deficit, the various components of the “fiscal cliff” are all consequences of legislation passed at various times during the Obama administration and can be averted by the passage of further legislation by Congress, regardless of whether that legislation adds to or subtracts from the deficit.

Deficit reduction is not a requirement of any previous legislation, but a political mandate from the financial aristocracy, which is demanding that its two political parties take joint action to make working people pay for a fiscal crisis that is the product of the 2008 Wall Street crash and the trillions expended to bail out the banks and corporations.

That the deadline is January 1, 2013 is politically revealing. In each of the bipartisan agreements between the Obama White House and congressional Republicans and Democrats—in December 2010, August 2011 and February 2012—the two parties acted deliberately to push back the decision until after the November 2012 elections, in order to prevent the American people from having any say on the measures to be enacted.

The same considerations were at work in the August 2011 agreement to raise the federal debt ceiling, which was increased from $14.3 trillion to $16.4 trillion, a level the Treasury is expected to hit early in 2013, perhaps as soon as mid-February. This will provide an additional pretext for the two big business parties to enact further spending cuts, or it may become part of the proposed “grand bargain” between the Obama administration and congressional leaders.

There are at least seven distinct tax and spending measures that will take effect at the end of the year, with a significant effect on the jobs and living standards of the vast majority of the American people. The estimate produced by the Economic Policy Institute, a liberal Washington think tank, places the total impact at $732 billion.

Expiration of the Bush tax cuts—$202 billion
The largest item is the expiration of the tax cuts first enacted under the Bush administration in 2001, originally to expire January 1, 2011. A deal between Obama and the congressional Republican leadership in December 2010 extended these tax cuts for two years, to January 1, 2013, as Obama capitulated to the refusal of the Republicans to accept any separation between the tax cuts for the wealthy and those for lower- and middle-income families. The deal also extended estate taxes at the low rate that prevailed in 2009.

The same issue is posed in the talks between the White House and Congress set to begin formally this Friday, with Obama again claiming to oppose any extension of the tax cuts for families making more than $250,000 a year or individuals making more than $200,000 a year. These upper-income tax cuts alone account for $52 billion of the total.

Drawing such an income line would require passage of legislation by both the Democratic-controlled Senate and the Republican-controlled House. If Congress deadlocks or Obama vetoes an extension, the tax cuts would expire for all income levels and the average working class family would see a significant reduction in take-home pay.

Across-the-board spending cuts—$128 billion
Spending cuts totaling close to $1 trillion over ten years will begin in January, with the specific programs to be selected by the Obama administration based on a 50-50 split between domestic and military programs. These cuts were part of the August 2011 deal between the White House and congressional Republicans to raise the federal debt ceiling.

This agreement enacted spending cuts of more than $1 trillion and provided for an additional $1 trillion in automatic cuts if a special congressional committee failed to reach agreement on further deficit-reduction. The so-called supercommittee deadlocked in December 2011, triggering the cuts that begin taking effect this January.

These include $50 billion in delayed impact from the initial round of cuts and $78 billion more in the so-called “sequester.”

Expiration of payroll tax cut—$115 billion
The payroll tax that underwrites Social Security and Medicare was temporarily cut from 6.2 percent to 3.1 percent in December 2010, and that cut was extended through the end of this year in February 2012. The expiration of this tax cut will be felt as a 3.1 percent reduction in income for low- and middle-income families, more than the typical pay increase. It will mean a significant drop in real income.

Expiration of extended unemployment benefits—$39 billion
These benefits were coupled to the payroll tax cut as “stimulus” measures in both the December 2010 and February 2012 bipartisan agreements, but in the second deal the Democrats accepted a Republican demand to reduce the duration of extended benefits from 99 weeks to the current 73 weeks for the hardest-hit states, and from 93 weeks to only 63 weeks for most states.

Now, even this inadequate level of benefits for the long-term unemployed is set to end, under conditions where more than five million workers have been out of work for six months or longer. One million long-term unemployed workers who have exhausted all state benefits will lose their extended federal benefits January 1, and a further one million will lose benefits in the first quarter of 2013.

Expansion of the Alternative Minimum Tax—$114 billion
The AMT, first enacted in the 1960s as a measure against tax evasion by the super-rich, was never indexed for inflation, so tens of millions of upper-middle-income families could now come under its provisions. Congress has repeatedly adopted temporary “fixes” to delay imposition of the tax, most recently in December 2010, limited to taxes on 2011 income.

If another “fix” is not adopted, or the AMT is not fully indexed for inflation retroactively, the number of families required to pay the AMT will rise from four million to 30 million next year, sharply increasing the tax bills these families will pay for income earned in 2012.

Expiration of miscellaneous tax provisions—$120 billion
As many as 80 provisions of the 2009 stimulus legislation introduced by the Obama administration and enacted by a Democratic-controlled Congress, or adopted in subsequent deals in December 2010 and February 2012, have either expired this year or will expire January 1. Most of these are incentives to business—$109 billion—while a small fraction, about $11 billion, represents tax credits or expanded deductions for working families.

Mandated cuts in Medicare reimbursement—$14 billion
The 1997 Balanced Budget Act, negotiated by the Clinton administration and then-House Speaker Newt Gingrich, established what was titled the Medicare sustainable growth rate, or SGR, to restrain the growth of payments to health care providers under Medicare. The SGR provision has never actually been put into practice, as pressure from hospitals and the American Medical Association has induced Congress to enact repeated versions of one-time provisions known in Washington jargon as the “doc fix.”

The most recent versions were incorporated into the December 2010 and February 2012 bipartisan agreements under the Obama administration. The latest one expires on January 1, 2013. If the much lower ceiling is imposed, with Medicare reimbursement cut by 27 percent, many doctors and hospitals may stop accepting new Medicare patients and even phase out treating current patients.

World Socialist Web Site

Global Research Articles by Patrick Martin

© Copyright Patrick Martin, Global Research, 2011

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014