Fiscal cliff. Sequestration. Bush tax cuts. What does it all mean? Well, it depends who you ask. Some, such as former Secretary of the Treasury Larry Summers, have warned of a major recession if the country doesn't take action before the end of the year. Others, such as Congressman Ron Paul, argue that the United States has already gone off the fiscal cliff, and that there is little hope that Congress will act to get the country's finances in order. While the actual effects of inaction are far from certain, what is certain is that most taxpayers — individuals and businesses — will see their taxes increase next year if Washington does not act to extend the Bush-era tax cuts.
12/3/2012. 6:17pm: Shocker: The White House has rejected the GOP's counteroffer (see below).
12/3/2012, 4:26pm: The much awaited Republican counteroffer has been made in the fiscal cliff negotiations, and it is not a very serious proposal. Speaker Boehner's offer would extend the Bush-era tax cuts for everyone, including the top 2% of income earners. It would cut Medicare, Medicaid, and Social Security by a total of $600 billion, apply a more restrictive measure of inflation on Social Security, and raise the Medicare eligibility age to 67. The Washington Post sums it up thus:
"The framework serves as a counteroffer to the plan Obama put on the table last week, which was essentially a reprise of his most recent budget request. While both frameworks would reduce borrowing by more than $4 trillion over the next decade, Obama’s proposal would raise $1.6 trillion in fresh revenue — double the amount in the GOP plan — and produce only about $350 billion in savings from Medicaid and Medicare, the biggest drivers of future borrowing."
11/30/2012, 3:55pm: When Treasury secretary Tim Geithner met with Speaker John Boehner on Thursday, he laid out Obama's opening offer of $1.6 trillion in tax hikes in exchange for $400 billion in Medicare cuts. The White House is also seeking to eliminate the debt ceiling, which requires congressional approval to raise, an extension of benefits for long-term unemployed individuals, and an extension of the payroll tax holiday for one year.
11/30/2012, 3:38pm: Speaking at a Pennsylvania toy factory, President Obama warned that middle class Americans might have a "Scrooge Christmas" if congressional Republicans did not agree to act on extending the Bush-era tax cuts. In response, House Speaker John Boehner said the president was not being serious, and added, "There is a stalemate. Let's not kid ourselves."
11/29/2012, 11:59am: Speaker John Boehner says that "no substantive progress has been made" concerning the fiscal cliff negotiations. He said that Democrats must be willing to compromise, or else "there's a real danger of going off the fiscal cliff."
11/28/2012, 4:11pm: Erskine Bowles, former co-chair of Obama's 2010 deficit reduction commission, says he thinks there's a one-third chance Democrats and Republicans will reach a deal. He told reporters, “I’m really worried. I believe the probability is we’re going over the cliff.”
11/28/2012, 1:50pm: When John Boehner talks, news websites listen, but hear different things. Consider the current homepages of MarketWatch and Huffington Post:
11/28/2012, 12:35pm: As part of its effort to ratchet up pressure on congressional Republicans to pass Bush-era tax cut extensions for the bottom 98% of income earners, the White House is promoting #My2K on Twitter — an allusion to the fact that the tax bill for a typical middle class family of four would increase by $2,200 next year if the tax cut extensions are not passed.
11/28/2012, 12:25pm: Okahoma Republican Congressman Tom Cole urged his GOP colleagues to support President Obama's plan to extend the Bush-era tax cuts for those making less than $250,000 — 98% of taxpayers — a year, but let them expire for those who make more. He told Politico, "I think we ought to take the 98 percent deal right now,” noting, "It doesn't mean I agree with raising the top 2 [percent]. I don't."
Cole's position is striking because of his prominent position within the Republican Party, which includes a stint as head of the National Republican Congressional Committee. Politico notes that Cole's stance could give other GOP lawmakers political cover to accept Obama's plan on tax rates for individuals.
11/27/2012, 3:25pm: President Obama is putting on his PR Director-in-Chief hat by commencing an appeal to the public and the private sector in a series of appearances, including a meeting on Wednesday at the White House with business leaders, and a stop in Philadelphia on Friday to make his case for averting the looming fiscal cliff. The Wall Street Journal reported that the White House is still in the process of finalizing the list of Wednesday's attendees, but one of the guests is confirmed to be Goldman Sachs CEO Lloyd Blankfein, who is also scheduled to meet with House Speaker John Boehner that day.
In addition to Blankfein, Boehner will meet with Thomas Wilson, president and CEO of Allstate Corp., Doug Oberhelman, CEO of Caterpillar Inc., David Cote, the chairman and CEO of Honeywell International Inc., and Mark Bertolini, the chairman and CEO of Aetna Inc.
It's no secret the nation's finances are a mess. The country's national debt is at more than $16 trillion, which is about equal to the country's gross domestic product. A one-to-one debt to GDP is usually bad news. Given the massive budget deficits Washington has posted in recent years, the accumulation of this debt is not surprising. This year was the fourth in a row in which the federal government ran a budget deficit of more than $1 trillion.
If the Bush-era tax cuts are allowed to expire on December 31, taxpayers will endure $500 billion in tax increases, as the rates will revert back to pre-Bush levels. The average worker's tax bill would increase by about $1,000 next year, and would negatively impact demand and thus economic growth. In addition, inaction would trigger cuts in federally-funded unemployment insurance for jobless individuals who have exhausted their state benefits. It would also reduce payments to doctors under Medicare by 27%, and prompt $65 billion in across-the-board cuts — also known as sequestration. The sequester was established by the August 2011 Budget Control Act, which was the result of a compromise between Democrats and Republicans to raise the country's debt ceiling.
Republicans have maintained the position that they do not want to see the expiration of any tax cuts. Democrats have indicated that they wish to extend the tax cuts for those earning less than $250,000 a year, or 98% of taxpayers. Senate Republicans have blocked efforts to pass bills that would extend the cuts for the bottom 98%, but allow the cuts for the top 2% to expire. President Obama has said he wants to see the top marginal tax rate return to 39.6%. Although Republicans have shown an unwillingness to allow the top rates to increase, some have suggested they would favor raising revenue by limiting deductions. Senators Saxby Chambliss (R - Ga.), Lindsay Graham (R - S.C.), and Representative Peter King (R - N.Y.) have all indicated a willingness to break the anti-tax pledge they signed with Grover Norquist's Americans for Tax Reform.
For their part, Democrats are hoping to avoid spending cuts, which liberal economists such as Paul Krugman say will make the country's already sluggish recovery even worse. Krugman and other Keynesian economists including Ben Bernanke — Chairman of the Federal Reserve — believe that during economic downturns, the government can step in and increase spending in order to fill the void in demand wrought by decreased private consumption.
This live blog will provide on-going updates and commentary on the latest happenings concerning the fiscal cliff negotiations between the White House and Congress. PolicyMic will also continue to provide in-depth coverage as the January 1 deadline looms.