Earlier today, President Barack Obama held the final White House press conference of his first term, using the opportunity to slam Republicans over the debt ceiling while making yet another call for more tax revenue — despite getting high tax rates on the wealthy in the “fiscal cliff” deal passed at the beginning over the year:
President Obama at a Monday press conference demanded that Congress raise the nation’s $16.4 trillion debt ceiling, saying the country is “not a deadbeat nation.”
Obama said Congress should pay the bills government has already rung up, arguing would be disastrous for the economy — which he said is showing signs of lifting off — to not raise the debt limit.
“It would be a self-inflicted wound on the economy,” he said. “To even entertain the idea of this happening … is irresponsible. It’s absurd.”
The president has insisted he will not negotiate with Republicans over raising the debt ceiling, and gave no sign of wavering on that position. Republicans are demanding steep spending cuts in exchange for raising the debt limit.
“They will not collect a ransom in exchange for not crashing the American economy,” Obama said Monday of Republicans.
“We can’t finish the job of deficit reduction through spending cuts alone,” he said. While open to “modest adjustments” to entitlement programs, Obama said, “we need more revenue through tax reform.”
The White House and many members of Congress — Democrats and Republicans alike — are patting themselves on the back this week as they averted the so-called “fiscal cliff.” Only in Washington, DC could making nothing in the way of substantive spending and raising taxes on 77% of American households be considered as some sort of victory.
President Obama claimed that the ”fiscal cliff” deal “protects 98 percent of Americans and 97 percent of small business owners from a middle class tax hike” and that he would “continue to fight every day on behalf of the middle class.”
Of course, this isn’t reality. What the middle class needs are jobs, and the “fiscal cliff” deal, which includes higher taxes on small businesses, is expected to keep the economy from living up to its full potential:
The tax deal is also expected to result in hiring growth at last year’s pace, meaning the creation of 150,000 to 160,000 payroll jobs a month, according to Michael Gapen, senior United States economist and asset allocation strategist at Barclays.
Without the tax increases, employers would probably be adding more than 200,000 jobs a month.
Altogether, that means the economy will “create 600,000 fewer jobs in 2013 — leaving the unemployment rate 0.4 percentage point higher — than it would have if the 2012 tax policies had been kept in place,” said Mark Zandi, chief economist at Moody’s Analytics.
It’s that time of year when I take a stab at guessing what will happen in the new year. Just like always, I will take a stab at national politics, international politics, the economy, and sports.
*There will be a debt ceiling fight. America’s credit worthiness will be downgraded. Ultimately, the debt ceiling will be raised with no real spending cuts or entitlement reforms.
*No gun control legislation will pass this year on the Federal level. However, the left will embark on a cultural campaign against gun ownership in general.
*Minor filibuster reform will be enacted in the Senate and will be largely limited to Presidential appointments and budgetary issues.
*Chris Cristie is reelected governor of New Jersey and Terry McCauliffe is elected governor of Virginia.
*There will be a significant terrorist attack on US soil.
*Gay marriage becomes legal in Illinois.
*Proposition 8 in California is struck down by the Supreme Court on very narrow grounds that would apply on to that particular case.
*At least one state abolishes the death penalty.
*John Kerry will be confirmed as Secretary of State, but Chuck Hagel will be denied Secretary of Defense.
*Japan begins to rearm and becomes more aggressive with China.
*North Korea will create an incident with South Korea that will raise tensions but will ultimately die back down after a month or two.
*NATO forces strike Syria and force Bashir Assad from power.
*Hugo Chavez finally dies and makes his voyage to Hell.
*The European Union continues on the path towards centralizing into a superstate, while anti-EU parties do well in various national elections.
*Netanyahu reelected as Israeli Prime Minister
With the “fiscal cliff” looming, the $1.2 trillion automatic budget cuts, also known as sequestration, will trigger on 1 January 2013, as part of the 2011 Budget Control Act. The Department of Defense will bear 41% of this burden, cutting $492 billion over 10 years.
Although these cuts aren’t actually cuts at all, but merely decreases in the rate of growth, neither political party has the will or the want to let them go into effect. Politicians on both side tell us sequestration will cut our Navy to its smallest size since WWI, and cut our ground forces to their smallest size since WWII. Our Department of Defense, however, currently consumes 20% of the federal budget and 5% of the US economy. At $707.5 billion, the 2012 Defense budget is more than double its $291.1 billion size in 2001, before our modern wars began. Having technically ended a war last year, and currently drawing down in another, what exactly are we spending our money on? How do we, every year, spend more on defense than we did the year before? Instead of sheltering the Department of Defense from spending cuts, perhaps it should be the first place we look.
The on-going debate on the “fiscal cliff,” automatic tax hikes and spending cuts that will take place at the beginning of the year, has constantly been at the forefront of the news over the last several months.
Last week, 180 economists signed a letter to members of Congress explaining why a tax hike would hurt the economy. They instead call on Congress to take up tax reform — a simplified tax code with lower rates — reduce spending and take up enetitlement reform:
Some in Congress have advocated allowing the 2001 and 2003 taxpayer relief laws to expire for some or all taxpayers. Such an action would have a significant, negative impact on the economy. Low taxes can have a constructive economic effect by keeping money in the private sector, where it is far more likely to be utilized for efficient purposes. By contrast, raising taxes would divert resources into the relatively inefficient public sector, thereby curbing potential job creation and economic growth. This effect would be even more pronounced during a persistent slump.
In particular, Congress should avoid raising marginal tax rates on income and taxes on investment, such as capital gains and dividends taxes. These types of taxes most directly and meaningfully affect job creation.
Portugal May Become the First of Europe’s Bankrupt Welfare States to Stumble upon a Genuine Recovery Formula
Written by Daniel J. Mitchell, a senior fellow at the Cato Institute. Posted with permission from Cato @ Liberty.
There aren’t many fiscal policy role models in Europe.
Switzerland surely is at the top of the list. The burden of government spending is modest by European standards, in part because of a very good spending cap that prevents politicians from overspending when revenues are buoyant. Tax rates also are reasonable. The central government’s tax system is “progressive,” but the top rate is only 11.5 percent. And tax competition among the cantons ensures that sub-national tax rates don’t get too high. Because of these good policies, Switzerland completely avoided the fiscal crisis plaguing the rest of the continent.
Despite the White House rejecting his offer to raise tax rates on millionaires, a proposal formerly supported by many Democrats, House Speaker John Boehner is expected to move a version of his proposal through the House of Representatives:
Speaker John Boehner told his conference on Tuesday he will move to a “Plan B” in fiscal cliff talks with the White House that would raise tax rates on annual income above $1 million.
Boehner announced the plan to his conference behind closed doors after a flurry of negotiations with President Obama that showed the two sides were moving closer to a deal. Yet differences remain over spending cuts, entitlement reforms, new spending measures demanded by Obama and the president’s request for a hike to the debt limit.
Boehner is scheduled to address the media this morning.
“For weeks, Senate Republicans — and a growing number of you — have been pushing for us to pivot to a “Plan B.” I think there’s a better way. But the White House just can’t seem to bring itself to agree to a “balanced” approach, and time is running short,” Boehner said, according to prepared remarks.
“At the same time we’re moving on “Plan B,” we’re leaving the door wide open for something better. And I have been clear about that with the president. Plan B is Plan B for a reason. It’s a less-than-ideal outcome. I’ve always believed we can do better,” he said.
Written by Steve H. Hanke, a senior fellow at the Cato Institute. Posted with permission from Cato @ Liberty.
This Sunday (2 December 2012), David Gregory hosted a lively session of NBC’s Meet the Press. The focus of Sunday’s program was the so-called Fiscal Cliff. Gregory rounded up many of the usual Washington suspects, including Treasury Secretary Timothy Geithner, and drilled them on their talking points.
Several times, in the course of Gregory’s questioning, he referred to President Bill Clinton’s tough 1993 budget deal. Throughout the broadcast, Gregory kept stressing the fact that the 1993 deal included defense cuts. For Gregory, those cuts were the flavor of the day.
This isn’t surprising. Indeed, most members of Washington’s chattering classes parrot the line thatthe economy boomed during the Clinton years because Clinton was the beneficiary of the so-called peace dividend, which allowed him to cut defense expenditures.
In fact, if we look carefully at the federal budget numbers, while Clinton did cut defense expenditures, as a percent of GDP, the majority of the Clinton squeeze came from non-defense expenditures. Indeed, as can be seen in the accompanying table, the non-defense squeeze accounted for 2.2 percentage points of President Clinton’s 3.9 total percentage point reduction in the relative size of the federal government.
As noted yesterday, House Republicans have laid out their counter-proposal to the White House as negotiations continue on the so-called “fiscal cliff.” While GOP leadership seems pretty darn impressed with their plan to raise taxes by $800 billion, Sen. Jim DeMint (R-SC) has come out strongly against it:
The comments from DeMint, co-founder of the Senate’s anti- tax Tea Party caucus, represent a strong indictment of Boehner’s plan from a fellow Republican lawmaker and highlight a divide within the party. Boehner yesterday proposed a $2.2 trillion deficit-cutting proposal that seeks $800 billion in revenue in the next decade from an overhaul of the tax code that would curb some breaks.
“Speaker Boehner’s $800 billion tax hike will destroy American jobs and allow politicians in Washington to spend even more, while not reducing our $16 trillion debt by a single penny,” DeMint said in a statement. “Republicans must oppose tax increases and insist on real spending reductions that shrink the size of government and allow Americans to keep more of their hard-earned money.”
While House Republicans have made it a priority to protect business owners during negotiations over the so-called “fiscal cliff,” there are signs that investment as businesses seeing more economic problems coming:
U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery.
Half of the nation’s 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls.
Corporate executives say they are slowing or delaying big projects to protect profits amid easing demand and rising uncertainty. Uncertainty around the U.S. elections and federal budget policies also appear among the factors driving the investment pullback since midyear. It is unclear whether Washington will avert the so-called fiscal cliff, tax increases and spending cuts scheduled to begin Jan. 2.
Companies fear that failure to resolve the fiscal cliff will tip the economy back into recession by sapping consumer spending, damaging investor confidence and eating into corporate profits. A deal to avert the cliff could include tax-code changes, such as revamping tax breaks or rates, that hurt specific sectors.
The Wall Street Journal does explain that the economy could see a boost when and if a deal is made to avoid the “fiscal cliff.” Don’t take that as a sign of approval from businesses and investors, but rather sign of them knowing what exactly they’re dealing with moving forward.