Seven ways the “fiscal cliff” crisis could end

When the House rejected a bill that would raise taxes on just 0.18 percent of Americans – those making more than $1 million a year, it has raised questions about the Republican-led chamber’s ability to approve any plan to avert the looming “fiscal cliff.”

Unless both sides can agree, the largest economy in the world could be thrust back into a recession because of the steep tax increases and spending cuts that are due to begin in January.

The threat of across-the-board government spending cuts and tax increases – about $600 billion worth – was intended to shock the Democratic-led White House and Senate and the Republican-led House into moving past their many differences to approve a plan that would bring tax relief to most Americans and curb runaway federal spending.

If there is no agreement, what are the possible outcomes?

#1 Obama and Boehner go back into their secret negotiations.

#2 A huge drop in the stock market sends a loud message to Washington politicians to stop arguing and cut a quick but meaningful deal. That is what happened in late September 2008, after Congress rejected a massive financial bailout package despite warnings by Federal Reserve Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson of an economic collapse if the bill failed.

#3 Should no deal happen, like I said, “temporarily”, we go over the cliff. Sure taxes will go up for everyone, but they go back to the Clinton era, before Bush enacted his tax cuts. They rise if Republicans give in to Obama and allow him to just tax the rich.

Why could they reach a deal in January if they fail in December?

The reason would be that once taxes go up, it would be easier to allow a few of those increases to remain in place – mostly on the wealthy – and repeal those that would hit middle- and lower-income taxpayers.

And should we go over the cliff, no member of congress would have to vote for a tax increase on anyone – taxes would have risen automatically – and the only votes would be to decrease tax rates for most Americans back to their 2012 levels.

#4 No deal occurs for another six weeks or so. If Congress does not raise the nation’s debt limit, by mid-February the Treasury Department likely would exhaust its ability to borrow. That would put the nation at risk of defaulting on its debt.

Republicans have withheld their approval of the debt-limit increase as leverage to try to get the kind of “fiscal cliff” solution they want: Fewer increases in spending and taxes, and more cuts to Social Security, Medicare and Medicaid.

#5 Boehner could call for a House vote on a bill that would raise tax rates for families with net annual incomes above $250,000, exactly what Obama has sought.

The plan could pass the House with strong Democratic support and some Republican
votes. As soon as it passed, the House likely would leave town for the rest of the year without addressing other Obama priorities such as increasing the government’s debt limit.

#6 A partial deal is struck at any point. Congress could pass a plan that would put off most of the income tax increases that are due in January, or extend some other expiring tax breaks – namely one to prevent middle-class taxpayers from being subject to higher tax rates aimed at the wealthy under the alternative minimum tax.

#7 Stock markets do not tank and Washington politicians conclude that the “fiscal cliff” is not such a bad thing.

Under this scenario, Congress and the White House could continue sniping at each other throughout 2013 and 2014 as they try to revamp tax policy and impose long-term spending cuts.

Reuters

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One response

  1. I hate to tell you barry but….you can not EFFECTIVELY lead by caveat nor carrot. Your dire warnings and threats have lost all effect and by giving a select few a carrot you alienate the rest. It’s even too late to take a Dale Carnegie course. You only got where you are by fooling people who believe in nothing ( including the Constitution ) so fell for the first thing that came along.

    You remind me of a piece of poorly veneered furniture. It looks pretty good when it first arrives but it becomes shoddy and pretty useless with very little exposure to honest use.

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