Nation being driven over fiscal cliff

Nation being driven over fiscal cliff

Officials doubtful a deal will be reached in time to prevent automatic tax increases and spending cuts on Jan. 1

Senate Majority Leader Harry Reid this morning said it’s doubtful the country will avert falling over the fiscal cliff on Jan. 1, 2013, as Republicans and Democrats continue a stare-down that has sent uncertainty through the stock market this holiday season and left businesses and the general public wondering what impact the seemingly inevitable automatic tax increases and spending cuts will have on the economy.

And even as Republicans and Democrats go back and forth, Treasury Secretary Timothy Geithner issued his own warning yesterday over the nation’s debt ceiling if the issue is not resolved by the end of the year.

In a letter to Reid, Speaker of the House of Representatives John Boehner and congressional leadership, Geithner outlined the dire circumstances the Treasury Dept. faces if Congress does not raise the nation’s debt ceiling.

“I am writing to inform you that the statutory debt limit will be reached on Dec. 31, 2012, and to notify you that the Treasury Dept. will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations,” Geithner wrote. “These extraordinary measures, which are explained in detail in an appendix​ to this letter, can create approximately $200 billion in headroom under the debt limit. Under normal circumstances, that amount of headroom would last approximately two months. However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures.”

(To see the full extent of the measures needed, according to Geithner, click here)

The last time the nation approached the debt ceiling, Republicans and Democrats reached agreement that led to the so-called “fiscal cliff” of automatic cuts and tax increases. A bipartisan
“super committee” was set up to craft a deficit-reduction bill, but it could not reach agreement.

President Barack Obama left his Hawaiian family vacation early to return to Washington in case there is a fiscal cliff deal, but prospects of an agreement before the end of the year – when automatic triggers would raise taxes and cut billions from defense spending – appeared dim.

Boehner said on Wednesday that the House will not address the fiscal cliff until the Democratic-controlled Senate passes or amends bills the House has already sent to that chamber.

According to Business Insider, Reid responded during opening remarks on the Senate floor this morning, saying “It looks like that’s where we’re headed. I don’t know, time-wise, how it can happen now.”

Reid went on, attacking Boehner for operating the House as “a dictatorship of the Speaker.” Boehner has not called the House back in session and said he won’t until the Senate acts.

In the week before Christmas, Boehner tried to rally Republican support around a proposal that would raise taxes on those making more than $1 million a year, as opposed to the $250,000 threshold Obama wants. That proposal, though, garnered little support among House Republicans.

“As you know, the House did not take up the tax bill last night because we didn’t have the votes to pass it.  It’s not the outcome that I wanted, but that was the will of the House,” he said. “So, unless the president and Congress take action, tax rates will go up on every American taxpayer and devastating defense cuts will go into effect in 10 days.

“The House has already passed bills addressing the fiscal cliff.  We passed a bill replacing the president’s sequester with responsible spending cuts and did it last May. We passed a bill to stop all the tax hikes on the American people scheduled to take effect January 1, and we did that on August 1.  And we’ve proposed plans over and over again that Democrats used to support, but now they won’t,” Boehner added, without getting into specifics.

While Washington continues to search for common ground on a fiscal cliff solution, the public is growing weary. In the latest Gallup Poll conducted Dec. 21-22 and released yesterday, Americans are increasingly doubtful a deal will be reached.

Forty-eight percent now believe a deal is doubtful. At the same time, approval of Obama’s handling of the negotiations is rising, reaching 54%, up from 48% a week before. According to Gallup, public approval of congressional Democratic leaders’ performance in the budget negotiations rose 11 percentage points to 45%, while Reid’s approval rating rose 10 points to 34%. There has been no significant change in ratings of Republican leaders generally, or of House Speaker Boehner specifically, the polling organization noted.

Also out today, the Conference Board Consumer Confidence Index declined for the second straight month. The Board attributes the decline of the Index, which now stands at 65.1, down from 71.5 in November, to the impending fiscal cliff.

The Expectations Index declined sharply to 66.5 from 80.9 and the Present Situation Index increased to 62.8 from 57.4 last month.

“Consumers’ expectations retreated sharply in December resulting in a decline in the overall Index. The sudden turnaround in expectations was most likely caused by uncertainty surrounding the oncoming fiscal cliff,” said Lynn Franco, director of economic indicators. “A similar decline in expectations was experienced in August of 2011 during the debt ceiling discussions. While consumers are quite negative about the short-term outlook, they are more upbeat than last month about current business and labor market conditions.” 

Consumers’ assessment of current conditions improved in December. Those stating business conditions are “good” rose to 17.1% from 14.6%, while those stating business conditions are “bad” decreased to 27.3% from 31.2%.

Consumers’ appraisal of the labor market was mixed. Those saying jobs are “plentiful” edged down to 10.3% from 11%, while those saying jobs are “hard to get” declined to 35.6% from 37.4%.

Consumers’ optimism about the short-term outlook plummeted in December. The percentage of consumers expecting business conditions to improve over the next six months declined to 17.6% from 21.3%, while those expecting business conditions to worsen increased to 21.5% from 15.8%.

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