Fiscal Cliff: The “Basic Package”

President Obama Proposes “Basic Package” Solution

The fiscal cliff melodrama moved toward its last-ditch, face-saving 2012 finale on Friday. A late afternoon White House meeting was wrongly described by attendees as “hopeful and optimistic”.

The main political goal has shifted. Instead of helping the country, the goal is to prevent Congress from looking totally ineffective… hence their optimism.

The pragmatic truth is that the President’s final “basic package” proposal includes $306 billion in unmentioned tax hikes quietly leveled against Americans; above and beyond the additional $50 billion pound-of-flesh from the rich already publicly demanded.

The final negotiations are characterized more by what is not included in them than by what is.

For sure there will be contentious, long-drawn-out ideological battles in 2013.

Where Negotiations Stand

Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell were sent off by themselves to hammer out a bill that can be voted on by both Houses of Congress on Monday.

Don’t expect much to come of it.

Leader Reid has forgotten how to negotiate. The logjam of House passed bills dealing with debt and deficits have turned to dust inside his desk drawer, untouched by human hands. He hasn’t taken up a budget in three years.

If no solution is found (the likely outcome) then that leaves only the final Presidential appeal to vote on a skeleton “basic package” bill that Majority Leader Reid will introduce in the Senate for an up or down vote.

For sure, the basic package will contain:

  • Make Bush-era tax cuts for those making less than $250,000/yr permanent (-$111 billion/yr)
  • Extend jobless benefits into 2013 (+$30 billion)
  • Groundwork steps for further negotiations

It is unclear, but the mysterious bill may or may not contain:

  • “Patch” the AMT – Alternative Minimum Tax (-$119 billion/yr)
  • A reduction in the inheritance tax (-$13 billion)
  • A Medicare “doc fix”

Everyone agrees on keeping middle class tax cuts. The AMT patch is the only red meat put on the table. It is also meaningless, given that Congress already ritually patches the AMT every year. The patch prevents a $119 billion/yr tax hike on 27 million more Americans.

Raising taxes on the rich would bring in about $50 billion/yr in new revenues against a $1.1 trillion deficit. The jobless benefits will cost another $30 billion in new spending. The Medicare “doc fix” is so small that it doesn’t even rate a line item on most folks fiscal cliff lists.

The inheritance tax piece is there to appeal for Republican votes.

Left for 2013 Political Infighting

Crucial items left out will all be discussed in 2013:

  • Raising the debt ceiling limit again
  • Sequestration ($110/yr in spending cuts)
  • Payroll tax holiday (+$125 billion/yr)
  • Obamacare tax increases (+$21 billion)
  • Tax Extenders (+$20 billion)
  • Business investment tax (+8 billion)
  • Totals: +$306 billion in tax hikes; $110 billion in spending cuts

It leaves sequestration totally untouched, assures another fight over raising the debt ceiling and leaves intact $306 billion in tax hikes beginning next Tuesday.  It will ‘only’ be $174 billion in tax hikes if the AMT and inheritance tax decreases get included in the basic package.

No matter what, a hit on the economy is assured.

Conclusions

There is no good reason for Americans to be “hopeful and optimistic”. There isn’t even logical reason for the President being “modestly optimistic”.

Lost in the last minute shuffle is an impending recession should we go over the remaining cliff and stay there. The mini-cliff “basic package” proposal doesn’t prevent it. Everyone will still see a minimum +2.1% increase in taxes.

The basic package leaves all the biggie issues unresolved, left for contentious battles next year. Those fights will further degrade confidence in the U.S. economy that will affect investments and world markets. Recession is looking more and more likely.

That is probably why even the basic package will fail.

Thanks for nothin’, Mr. President. Thanks for nothin’, Congressmen.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Dec 29, 2012, in Business, culture, Debt crisis, economics, fiscal cliff, Life, news, Opinion, Politics, Thoughts. Bookmark the permalink. 5 Comments.

  1. Where did you get the cost estimates that you used for the various parts of the package?

    • Good question. The raw data comes from government sources, mostly the CBO, OMB or CRS. Most of that data have been collected and organized by non-government sources like the Tax Policy Institute and other reasonably reliable sources.

      Then I take the estimates I’ve found that have been widely published from various sources and add and/or subtract them to come up with estimated numbers, like the $306 billion in remain tax hikes, that I write about in articles.

      I always recalculate the numbers I use while writing as a form of self-verification. Plus I don’t trust anything to my memory. I still get it wrong sometimes. lol!!

  2. Hey, AZ! Here’s wishing you a happy new year in spite of everything else!

  3. Alleen Johansson

    i love the subject physics and i was always amazed by it.`

    Newest post on our own web portal
    http://www.healthmedicinelab.com/popped-blood-vessel-in-eye/

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