I never had all that much faith in a fiscal cliff deal that accomplished much of anything, but what passed last night made things spectacularly worse. It's actually pretty impressive when you think about it.
You might remember that the fiscal cliff itself was a product of the 2011 debt ceiling clusterfuck. Just off the top of your head, can you name the other grown-up countries that have a debt ceiling at all? The correct answer is "none." Has the ceiling done anything to control U.S debt? The answer to that is pretty clearly no. It's an archaic and dangerous tool that long ago outlived any usefulness it may have had.
This completely invented crisis began with the Republican Party's singular inability to tell the truth about the debt. Ronald Reagan tripled it and George W. Bush doubled it again, but it's all Barack Obama's fault. That set the stage for the GOP to hold the economy hostage in the summer of '11 and very nearly caused the first default in U.S history.
This week presented the last best opportunity for the United States to right its fiscal ship. Not only was the "sequester" - drastic, automatic spending cuts - set to take effect yesterday, the Bush tax cuts and Obama's payroll tax holiday were set to expire. Oh, and the debt ceiling limit was hit at midnight on New Year's Day. Never again will there be a chance as good as this one to make a serious effort to address the coming catastrophe. America is now guaranteed to hit an economic iceberg and they will do so soon.
The positions of both sides were childish, ineffective and based more on politics than economics. President Obama spent the last five years saying that he wanted to make the Bush tax cuts permanent for everyone making under $250,000 a year and cut almost nothing in spending, whereas House Republicans wanted all the tax cuts made permanent, sought "entitlement reforms" that took over a decade to be enacted and wanted further Pentagon spending. While the Democrats were slightly more serious than the Republicans, that isn't saying much, since it's almost impossible to be less serious than the Republicans.
House Speaker John Boehner is incapable of controlling the Tea Party mongoloids in his caucus, making him less than useless as a negotiating partner. So he insisted that a deal come from the Senate, despite the Constitutional dictate that money bill originate from the House. That left it to Vice President Joe Biden and Senate Minority Leader Mitch McConnell to hammer out a deal.
Here's what they came up with.
— Tax rates will permanently rise to Clinton-era levels for families with income above $450,000 and individuals above $400,000. All income below the threshold will permanently be taxed at Bush-era rates.
— The tax on capital gains and dividends will be permanently set at 20 percent for those with income above the $450,000/$400,000 threshold. It will remain at 15 percent for everyone else. (Clinton-era rates were 20 percent for capital gains and taxed dividends as ordinary income, with a top rate of 39.6 percent.)
— The estate tax will be set at 40 percent for those at the $450,000/$400,000 threshold, with a $5 million exemption. That threshold will be indexed to inflation, as a concession to Republicans and some Democrats in rural areas like Sen. Max Baucus (D-Mt.).
— The sequester will be delayed for two months. Half of the delay will be offset by discretionary cuts, split between defense and non-defense. The other half will be offset by revenue raised by the voluntary transfer of traditional IRAs to Roth IRAs, which would tax retirement savings when they’re moved over.
— The pay freeze on members of Congress, which Obama had lifted this week, will be re-imposed.
— The 2009 expansion of tax breaks for low-income Americans: the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit will be extended for five years.
— The Alternative Minimum Tax will be permanently patched to avoid raising taxes on the middle-class.
— The deal will not address the debt-ceiling, and the payroll tax holiday will be allowed to expire.
— Two limits on tax exemptions and deductions for higher-income Americans will be reimposed: Personal Exemption Phaseout (PEP) will be set at $250,000 and the itemized deduction limitation (Pease) kicks in at $300,000.
—The full package of temporary business tax breaks — benefiting everything from R&D and wind energy to race-car track owners — will be extended for another year.
— Scheduled cuts to doctors under Medicare would be avoided for a year through spending cuts that haven’t been specified.
— Federal unemployment insurance will be extended for another year, benefiting those unemployed for longer than 26 weeks. This $30 billion provision won’t be offset.
— A nine-month farm bill fix will be attached to the deal, Sen. Debbie Stabenow told reporters, averting the newly dubbed milk cliff.
Congratulations everybody! You just accomplished nothing!
Republicans say that America has a spending problem, while Democrats insist that the problem is with revenue. Anyone with any brains knows that the issue is with spending and revenue. This deal addresses neither.
Obama's insistence on returning to the Clinton tax rates for everyone making over a quarter million dollars raised negligible revenue. And he settled on $450,000 which raises even less.
Guess what this mess costs? Actually, you don't have to. The Congressional Budget Office estimates that it'll be a fortune.
The extension of lower tax rates for a bulk of the nation's taxpayers and the addition of a permanent patch to the alternative minimum tax would add roughly $3.6 trillion to the deficit over the next decade, the CBO said. Other individual, business, and energy tax extenders would add another $76 billion. The extension of unemployment benefits would cost roughly $30 billion, and the so-called "doc fix" would tally another $25 billion through fiscal 2022.
The CBO says the budget agreement will lead to an overall increase in spending of about $330 billion over 10 years.
When all is said and done, all the White House and Congress managed to do was increase the debt by $4 trillion.
Oh, and it was political clusterfuck for everybody involved, too! Liberals and conservatives are both furious with their own representatives. Pretty much everybody's credibility was destroyed yesterday.
And because the debt ceiling wasn't raised and sequestration was delayed for two months, the worst part of this mess is yet to come. More interestingly, neither side has a particularly strong hand to play. President Obama has shot his load on taxes and the GOP is still too rattled and scared from the November elections to be effective at much of anything. Nobody has the juice to make a Grand Batgain at the end of February. The Bush tax cuts are now effectively the Obama tax cuts, taking away the negotiating leverage he had on the revenue side.
As of Monday night, the United States has no authority to borrow. The Treasury Department can juggle around existing money until about the first of March, but that's it. After that, the federal government shuts down. At the same time, the sequester takes effect, automatically making excruciating cuts everywhere.
Since both sides have lost the trust of their respective bases, I can't see how a deal is made. I can't imagine that the GOP will give Obama a debt ceiling increase without drastic, non-defense cuts and the president would be a fool to give a weakened, scared and divided Republican conference anything close to what they want.
What is likely is the trifecta of ugliness: a government shutdown, brutal automatic sequestration cuts and a default on the national debt - all within about a week of each other.
If you think the markets are going to respond well to that, you're out of your friggin' mind. The stock exchange will crash harder than it has since 2008 and the international bond market may start to melt down. Treasury Bills will very probably become worthless overnight and the U.S government will have trouble funding itself when it resumes operation.
Both unemployment and interest rates could skyrocket, which might throw the country into a depression, possibly causing another round of bank failures. The meltdown of the European PIGS (Portugal, Ireland, Greece and Spain) would seem leisurely compared to a complete political and financial collapse in the United States. It's also important to remember that there's nobody capable of bailing America out.
Oh, and did I mention that the United States added $4 trillion to it's national debt last night? Because the United States added $4 trillion to its national debt last night. And they did that while accomplishing nothing more than delaying the apocalypse by 60 days.
Good work everybody!
Why am I the only one wondering why Americans hate america so much? I rather liked it when it was a serious country.
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