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President Barack Obama answered reporters' questions about the fiscal cliff and other issues in the East Room of the White House Wednesday.
ANALYSIS: Hopes for a bipartisan compromise on the "fiscal cliff" threatening the nation's economy are beginning to fade just 10 days after the election that will leave President Barack Obama in the White House and Republicans in command of the House. Obama on Wednesday drew a line in the sand, saying he was confident the problem could be resolved but that he would not approve an extension of Bush-era tax cuts for the wealthiest 2 percent of Americans.
The standoff guarantees that we will be hearing a lot more about the complex budget issue in coming weeks as Congress works against a Dec. 31 deadline, and possibly beyond.
Here are some answers to questions about the fiscal cliff and its impact on household budgets as posed to us by TODAY.com readers in a web chat this week:
Is this fiscal cliff thing going to be resolved soon? If not, will all hell break loose in the markets?? -Jen
The cliff is really more of a slope because the cuts don’t hit all at once on Day One. The tax hikes – if they are allowed to take effect – would raise the average household tax bill by about $68 a week.
Financial markets are concerned about several different issues. Stock investors are worried that the capital gains tax rate will go up, which is why many are selling now before year's ends. (The Dow Jones industrial average is down 5 percent since Election Day.)
The more worrisome reactions would be from the bond market, where investors are still buying Treasury debt at record low interest rates. If they begin to fear that the U.S. government has lost control of its finances, those rates could go higher. That would be very bad news for the economy.
Do you believe raising taxes on the upper 1 percent and closing loopholes is a way to begin to draw down the deficit?
It’s hard to see how you can balance the budget without raising taxes. Call them “revenues” if you don’t like the word “tax.” The hard part is deciding who pays more.
Closing loopholes sounds like a great idea – until the loophole that’s closed is the one that puts money in your pocket. Unfortunately, the most popular loopholes are the most expensive, such as the deduction for mortgage interest. It would be great if cutting subsidies to, say, the oil industry would do the job. But most of the “freebies” go into individuals in the middle of the income ladder. Here’s our story with a list of who gets what.
If these guys can't get their act together, is there an easy way to figure out how much my taxes would go up? I know budgeting is a foreign concept to the guys in Washington, but it's important for me to do a monthly budget, so knowing what my income will be is kind of important. -Ed
Well, they do create budgets. The problem is that they use math and accounting rules that few people on planet Earth can understand.
There have been multiple studies done on the impact of various proposals on specific taxpayer/income groups, but none of these proposals is going to survive intact. So until you see the line-by-line law that results from these budget talks, there’s no way to know how it will impact your tax bill.
You can also expect this to be one of the worst tax-filing seasons in recent memory. Just keeping up with “routine” changes in the law is a challenge for the IRS. It’s a safe bet that a lot of people will be filing extensions this year.
If no deal is reached, will there be money to fund Social Security payments and Federal workers' pay? I know last time that was a big concern. - Matt
If no deal is reached by the end of the year, the government continues paying its bills without interruption. Social Security payments and federal salaries go out as normal. For federal workers, the question is whether the agencies that, by law, have to cut spending will begin laying off workers. That’s also unlikely on Day One. Though the spending cuts are fairly deep, the agencies have broad discretion in how quickly they make them. Some may decide to hold off – expecting a deal to be a reached in a few weeks or months.
What constitutes rich in this country? Daniel Indiviglio, Reuters Breaking Views, and Simon Rosenberg, New Democrat Network, discuss who should get a tax hike in order to solve the fiscal cliff.
We also face another congressional brawl over raising the debt ceiling, which we’ll hit sometime in January. (The exact date depends on how much tax is collected in December.) If Congress decides to play games again with the debt ceiling, that would force a shutdown in spending – and possibly send the Treasury back toward default. The debt ceiling debacle in July 2011 is what produced the law that created the fiscal cliff in the first place.
Can't the Fed just print their way out of this? -Troy
Not really. The Fed has helped ease the pressure on Congress by lowering interest rates, which has lowered the cost of borrowing needed to make up the deficit shortfall. The government paid less interest last year on its $16 trillion in debt outstanding than it did in 2008 on $10 trillion in debt.
But the Fed can’t keep rates low forever. As rates go up, so will the cost of servicing the debt which, in turn, adds to the deficit.
If the definition of insanity is doing the same thing over and over again and expecting different results, then why is the Fed’s monetary policy and the federal government's habit of increasing the debt ceiling going to fix anything? - Jesse
Fed policy and the debt ceiling are certainly related to the deficit debacle, but they’re not the problem. Fed policy is much more the result of the once-in-a-lifetime financial collapse of 2008.
The debt ceiling is a legal technicality: If your lender increases the limit on your credit card, you don’t owe any more money. The question is whether you have the discipline not to go out and spend it.
My own view is that there is a single cause underlying the debt crisis that is hitting the developed world: increased human longevity. When Social Security and Medicare were created, no one expected people to live as long as they do. That has made all state-funded health care and income security programs more expensive than when they were originally designed. But no politician will ever get elected on a platform of cutting these programs. None of us wants to give up the idea that these programs will be there when we’re old.
Related: 47 million Americans living in poverty
I thought we wanted to reduce the federal debt. Increasing taxes and cutting spending appears to be the correct method - why is it all of a sudden the wrong thing to do? Do we not have to start paying down the debt?
The most important measure of the debt isn’t its absolute size – it’s the size relative to the size of our economy. If you have credit card debt of $20,000 but you only earn $30,000, you’re in a lot worse shape than someone with the same size debt who earns twice as much.
But yes, we want to slow the growth of debt and get the economy (our national income) growing faster. The problem is if we try to do it all at once, the economy will slow down again. Tax hikes take money out of the larger economy. So do spending cuts - think of all the government contractors who pay salaries to their employees.
Once the economy gets back on track, it will be a lot easier to raise taxes and control spending because our overall national income will be higher.
Our monetary policy is directly related to the current fiscal crisis. If we hadn't abandoned the gold standard, the government wouldn't have got us to this point. Any chance we'll hear renewed talks of returning to some variation of gold standard? - Mike
If we could turn the clock back, oh, say 100 years, it might be possible for the U.S. dollar to be linked to gold. Today, you might as well ask everyone to throw away their cellphones. Forever.
Governments – no matter how big – can’t fix the price of a commodity that is bought and sold second-by-second on a global market. But even if ours could, there’s another much bigger problem. There’s simply not enough gold in the world to back the U.S. debt outstanding.
Click here for full story on the gold standard debate.
And here is the link to the full webchat:
Leave a Comment:
A lot of talk about budgets in the comments - need a constitutional amendment that says we can't spend more than we bring in.
Raising taxes on the wealthy gets us closer to a balanced budget, cutting entitlements gets us closer as well. Both need to happen. And those receiving entitlements need to be drug tested!
The Top 10% already pay 70% of Federal Income Tax. How much do you want them to pay of it? You could take ALL the wealth of the 400 riches U.S. families and it would not cover Obama's deficit gap for even one year.
While reducing the size of government, government spending and the deficit are good goals they neither will solve our problems nor ever address what caused the problems, actually they are an intentional distraction from focusing on what did cause our problems. Our problems were not caused by government spending and some responsible government spending will actually help revive the economy (as some already has). What caused our problems was exploitation by the few, with excessive deregulation, lax oversight and weak enforcement encouraging run-away greed, gross dishonesty and self-indulgence, resulting in repeated crisis in savings-and-loans, banks, dot.coms, the mortgage, financial and investment industries, also with corporate corruption (like Enron) and costly industrywide failures - always with the few walking away with substantial gains and the country, the majority left with the significant costs and lost jobs.
Those circumstances were set-up by permissive politicians catering to "the money" and calling it "conservative", with the resulting problems growing as the politicians focus on looking to the 1% for their support, including to finance and help con the people and manipulate public opinion. Nothing they now seek even directly addresses the need for increased revenue as they just rationalize the economy will provide that, even as they advocate cutting taxes more. Their stubborn and self-serving focus continually pushes this country further into being a two-class society with the 1% feeding their insatiable "more" (never enough) appetite and competing in having it all, while the 99% simply loose more. The deception is disgusting and actually criminal in its irresponsibility and is literally a failure to honestly represent the people by refusing to offer bipartisanship or to work at cooperating and compromising to actually solve the problems. The aggressive efforts to distract from this reality, to find fault wherever they can and hoping to keep people focused there, is just more of the gross dishonesty and absolute failure to be responsible.
Communist/statist drivel,
The only reason corporations and lobbyists have power is that the government has too much control and thus can convey favors
The free and voluntary exchange of goods and services is the only system that works. History has proven this time and time again.
Yet those that think the dear gracious and all knowing government knows best are fools. Ask someone form the former USSR.
Gov't needs to shrink to it's definition in the constitution and leave the rest of us alone. We'll do just fine.
I'll just keep it simple stupid. If I have less take home pay the less I have to spend therefore I will be unable to help economic growth.
unless you continue to use your home equity as an ATM - oh wait, you're a renter...
Income is income no matter where it comes from and all income should be taxed the same period.
including child support, unemployment, disability, ssi, military disability, pensions, student loans, cash-advance loans, etc.
better idea - tax the fat and stupid
Dividend income has already been taxed once at the corporate level - all income is NOT income.
The simple fact is that both parties have contributed to the deficit nightmare we face. The Democrats had control of the House and Senate for the last two years of Bush and first two years of Obama and did nothing to reduce the accumulated deficit nor the annual spending deficits.
For all of you who want to go back to the Clinton era tax rates, I say let's do it and while we're at it, let's limit spending to the same level of GDP. Of course to do that will take a huge spending cut.
In reality the problem is over spending. Obamacare is just the latest example. How stupid must you be to believe you can suddenly insure 40 million more people and it will not drive up costs?? Look at your 2012 W-2 when you get it. You'll see they've added a new box to show the real cost of the health insurance you get through your job. It's only a matter of time before they'll start taxing you for the amount your company pays. Watch and see!!!
"My own view is that there is a single cause underlying the debt crisis that is hitting the developed world: increased human longevity."
Certainly, no society can afford to be burdened by a burgeoning unproductive elderly population. However, the real problem is overpopulation in general -- specifically, the population-to-available-work ratio -- and this can't be blamed only or even primarily on longer life spans. Everyone has become unproductive. The world can't sustain a population of over eight billion people of any age, most of whom are no longer needed in the workforce.
The millenials, for instance, are in the prime of life but are having trouble finding a way to support themselves and are going deeper and deeper into debt just to keep afloat. More people in a world of finite resources implies a lower standard of living for all, and until this dire fact is faced with all its implications, debt will continue to rise until a breaking point is reached.
A strictly enforced one-child policy would be a first step, but the flabby Western democracies will never be able to muster the necessary leadership, and it may already be too late. My crystal ball shows an unparalleled fiscal and human catastrophe toward mid century.
It is quite apparent by those who voted for Obama that they want and need the freebees and the handouts. They are gifts and obama knows it and that is who they worked on to get the vote. The college students to get their debt deferred so the tax payer can pick up the debt for them later. The latinos who believe Obama is going to fix immigration and of course the far left liberal nuts who would vote for Hitler if he was running for president!
Taxing the rich is just another bunch of BS they use saying it will help reduce the debt and deficit and help the middle class! These idiots are continuing to pound sand up you know where and all the liberal idiots believe it!
The single women who voted were those who have 5 or 6 kids and are on welfare so the daddy can go out and sell dope on the corner while we support them. The breed like rabbits and guess who is footing the bill? The other women who claim that their right to contraception are idiots and those who voted for Obama/Pelosi care are going to find just how expensive it is going to be.
The Supreme Court who ruled to call this a tax needs to be tossed out on their rearends because they are useless and we could do better by hiring the three stooges to make decisions when it comes to upholding the constitution.
To elect anybody for a lifetime is just idiotic! Keep an eye out for the continued massive spending, the increase of homeless and loss of more jobs because it is on its way. It is evident there is going to be no change in direction for the country except going down further in debt and deficit!
Rick Colo. Oh, because the majority of independent voters, of whom I am one, decided to vote for Obama, we are idiots? Well, screw you with bubba's junk.
The main reason Obama beat Romney is plain. The GOP got everyone mad at them, except their wacked out base. Trying to control the reproduction rights of women? Yes, some women do breed like rabbits, but the majority of women don't. That sure helped with your vote total.
Then, even if he did speak the truth, 47% of Americans are free loaders? Really, they pay no taxes at all? Hey, that was the GOP talking points. Guess what, all 47% pay some taxes, maybe not federal income, but they do pay taxes, even the hidden ones, such as property tax that is included in the overall rent amount.
Yep, you are a real sore loser. Hey, your GOP chairman even blamed Bush for the failure. He finally realized what the majority of American already knew. Shame you didn't figure that out.
And finally, why, really why worry about the deficit? VP Cheney said "deficits don't matter, Reagan proved that." So that is one thing you tea bagging people should not be talking about. Or does it matter just when a D is in the oval office? Sure seems like. Man, talk about some hypocritical rectums.
I've already experienced Obama care. Our policy was updated to be HHS Obama care compliant and premiums went up 30%.
Whoopee I get forced to pay 30% more for stuff I didn't want
I think the DEMS and Obama have a PR issue coming at them like a tidal wave. The Health Care Act will open health care to many that never had it, but the masses somehow think there is something in it for them and all the insured are going to see are higher premiums. Soon they'll be saying ObamaCare was a mistake too.
Here we go again. Talking about the made up "fiscal cliff". The word that is crashing the stock market........and your 401K.
CNBC needs color and I'm not talking about their logo.
It's too white and their allegiance is to the predominately white corporate America.
It's not a new organization. It is a propaganda machine.
"My own view is that there is a single cause underlying the debt crisis that is hitting the developed world: increased human longevity. When Social Security and Medicare were created, no one expected people to live as long as they do."
This is pure Bullcrap, the debt is the result of two main issues both of them the result of a government bought off to favor the benefits of a bunch of rich people who have used this country to get rich:
1. a series of wars that increased the value of oil and gasoline, and served the special interests of Arab monarchies, holding many of these monopolies.
2. the actual rise in gas prices to the tune of quaddrupling them, as these wars and various catastrophes in the US continued to grow.
This is the specter of President's Esenhower's Military-Industrial Complex come to life with a vengence; and a clear indication of how both the Republican and Democratic Parties have been bought out by special interests to serve the Oil monopolies that have taken over the world.
This is the result of the three terms of "Oil merchant Presidents" we had, which was countinued with yet another "Bush token" who is our present president. The people who have suffered the most are the elderly, and those on fixed incomes, who have to invest in insured CDs as their main source of income. Because of the continued keeping of the artificially low interest rates, their savings are dwindling. And when the interest rates increase we will all be hurting as the same people who have prospered on this debt, make even more on the increased interest rates they will accrue.
As usual, they want to blame the poor and elderly for everything, and make them pay, by cutting Social Security, Medical benefits and destroy the so-called "welfare state" they created by shipping all the jobs oversaes and hiring visa workers.
What the American people should clearly understand, in no uncertain terms, is we have no choice in America any more: We have been sold out to pay of the special interests that have bought our political parties. And now, we will be targeted with paying the bills they made for us!
If Obama's EPA does what Obama has promised, all hell will break loose. The poor won't be able to afford heating this winter and cooking is out of the question. Jobs will be lost in great numbers. Obama will have done what Osama wanted.
Myself, I feel going off the fiscal cliff will possibly have a good out come at the end of everything. Now I know some of you are going to say "wow, how is that you smuck?"
Here's how I think it will be good. First I believe that when these cuts start happening and taxes sky rocket.....our patriotic citizens will become very angry with what is going on and do something about it. Then we may possibly have some "CHANGE" in how our government is run. All in all, it'll be an ugly process.....but I think that our citizens will then want to hold ALL the politicians accountable for not doing their jobs, and have pay cuts for the future politicians while keeping then reigned in.
Now, on the note of the freezing of federal / government employees pay when these "cuts" take place, I'll be willing to bet that the politicians pay doesn't get froze.....If it would, then we wouldn't be having such a big problem......but they know they're going to get paid regardless, so they're in no hurry whats so ever to fix the problem.
I didn't expect a budget to come out of the Senate that was approved by the House. The Senate will not approve or discuss what the House has submitted as dictated by the Constitution. Taxpayer money spent on the Senate at this point is a waste. The Senate is controlled by the Democrats, but the budget is outlined by the House. Hence America's nightmare. No budget in 4 years and most likely not for another 4.
That being stated the Government should not be able to raise any taxes on anyone if they do not outline how they plan to spend it. The American working class is not an open checkbook.
The state of affairs in the US government appears to be beyond repair and the political bikering is just that as they both play on the fears of each side but they still get theirs don't they. I mean really they have to vote against a raise or they automatically get it. You wonder what wrong with Government? Really?
To big to fail, when it costs citizens of a country more than it makes to pay for the Government that is suppose to take care of it something is seriously wrong.
Every American citizen is required to prove they have health insurance, but not every person in America has to prove they are a citizen. This is exactly what is wrong with America.
Blame who you want, but nothing will get accomplished and the cliff or slope as the article is trying to rename that cliff is a very steep one.
Just what did America get for the 6.4 trillion dollars added to the debt? Anyone? Besides a free phone and foodstamps.
Please don't show your ignorance and say it is the cost of the wars as those were already budgeted at the time.
Inflation is evident and devaluation of the USD by the Fed should be called treason.
Good luck and still waiting for Harry Ried to pass a budget his primary job in the Senate.
"We the people" should have the right to FIRE our elected officials for failure to work together. I don't mean "elect different ones" when their terms expire, I mean fire their sorry backsides NOW. We EMPLOY them. They do not do their JOBS. They work for us but all too often they work in reality for themselves and their party line. The American people reelected Obama, yet Republicans dismiss that and continue on with their agenda, as if America was THEIR "private club". Democrats in the past have done similar. Work together or get the hell out!
If you did not get a tax cut as a result of the Bush tax cuts then you didn't pay any taxes. EVERYONE GOT A TAX CUT UNDER THE BUSH TAX CUTS!! Now if they all expire everyone who pays taxes will see an increase. The article said that on average about $68 dollars a week. That's real money to a lot of people! Over a months time thats a car payment! Only raising taxes on the top 2% will be popular with everyone else- especially politicians, it won't make even a small dent in the budget shortfall, but it sure will make all the liberals feel good to stick it to their bosses.
If they ever get serious about deficit reduction, everyone will have to pay more. Anything else is just rearranging the deck chairs on the Titanic...
Folks,
Speaking as one who teaches Economics at the University level, this game is over - we are now at 105% debt to GDP an growing ( Greece here we come). We will never pay that back, options are we either default or monetize the debt. If we default then no one will ever lend us money except at extreme rates and most likely we and the world go into a depression. We can print money which then spikes super high inflation because the value of the $ crashes. You can't tax your way out of this problem look at Europe - the more they ask for higher taxes to pay off their current and existing debt the less they get in because the economy shrinks providing less revenues. We are on the death spiral and there is no pulling out. I say let's just continue the party until the bond vigilantes say enough is enough and we end up like Greece. There really is no other way out of this game -so enjoy the ride while you can. All this talk about taxing the rich blah, blah, blah, is purely on the margin and won't make a bit of difference on the long term issue of debt and deficit and couple that we have a demographic problem - the country is getting older requiring ever higher promised social costs. Kick the can down the road and enjoy the ride.