Final Fiscal Cliff Hanger Effort of 2012

Category: Economy | US Federal Reserve
December 27, 2012 | Comments Off |
Share


Final Fiscal Cliff Effort

US Fiscal Cliff talks will resume once again as President Barack Obama returns from vacation in Hawaii and make one final attempt at negotiations to avoid huge tax hikes and spending cuts in the New Year. House of Representatives Speaker John Boehner has not yet set a date for bringing House members back to Washington from their Christmas break, reported Reuters. That makes the timing of a vote on any budget deal before December 31 more difficult. In a statement issued by Boehner and his top lieutenants, the Republican leadership team said “the Senate must act first” to revive efforts to avert the $600 billion in automatic tax hikes and spending cuts due to be triggered on January 1. They promised that the House would weigh whatever legislation the Senate produced. Last week, Boehner’s back-up plan to keep most income tax rates low collapsed amid opposition from fellow Republicans who opposed raising taxes on those making more than $1 million a year. The failed effort left uncertainty about what the next steps would be & kept the US in a state of a “Cliff Hanger” before it got tossed over into a deep recession.

Final Fiscal Cliff Hanger Effort of 2012
Final Fiscal Cliff Hanger Effort of 2012

Core Focus shifts as Clock ticks close to Fiscal Cliff Deadline:

The focus in Congress is shifting from broad deficit reduction to narrower efforts to avert the immediate shock of the December 31 Fiscal Cliff dive. There is still just enough time to prevent a fiscal crunch that would upset global financial markets and likely push the United States into recession. Reports of lackluster retail holiday sales added to the urgency for a deal. Shoppers might be spending less this holiday season in fear of looming income tax increases. A modest, last-minute measure in Congress to avoid deep spending cuts set for January 1 and most of the tax hikes could pass the Democratic-controlled Senate by the New Year, although Republicans would need to agree not use a procedural roadblock known as a filibuster. Republican Senator Kay Bailey Hutchison of Texas told MSNBC that $250,000 “is too low of a threshold” for raising income taxes. She said that in conversations she has had with some Senate Democrats, “they are saying maybe more in the $400,000 to $500,000 category.” Obama himself recently offered to raise the threshold to $400,000, before negotiations with Boehner broke off. A Senate Democratic aide downplayed chances for votes this week in the Senate, but suggested there could be legislative movement at the weekend. “We can’t do anything until Republicans either give us the 60 votes,” which are needed to advance legislation without long procedural delays, or allow a short-cut that lets bills pass on a simple majority vote in the 100-member chamber. But even if a handful of Senate Republicans support Democrats on a measure to avoid the worst of the Fiscal Cliff, time is too short. When the Senate returns on Thursday it is due to work on a disaster aid bill to help New York and New Jersey recover from Superstorm Sandy and other measures. In the Republican-controlled House, any bill that raises taxes on anyone would need a rare bipartisan vote to win approval. All 191 Democrats might have to team up with at least 26 Republicans to get a majority if the bill included tax hikes on the wealthiest Americans, as Obama is demanding. Some of those votes could conceivably come from among the 34 Republican members who are either retiring or were defeated in the November elections and no longer have to worry about the political fallout. Republican leaders argued that it was the Senate’s turn to come up with a legislative solution because the House had produced two bills earlier this year to avert the Fiscal Cliff. One would have continued the Bush-era’s low income tax rates for another year, despite strong Democratic opposition to continuing the tax break for household incomes above $250,000. Another bill would have replaced $109 billion in automatic spending cuts due to begin next month by stopping all of the planned military cuts and placing the entire burden on domestic activities, including some social safety net programs funded by the federal government. Those bills were passed by House Republicans knowing they would be stopped in the Democratic-controlled Senate, which is insisting on raising tax revenues to help reduce the federal deficit.

After the Fiscal Cliff Deadline:

Once the clock ticks past midnight on December 31, no member of Congress would have to vote for a tax increase on anyone – taxes would have got raised automatically – and the only votes would be to decrease tax rates for most Americans back to their 2012 levels. An alternative is for Congress to let income taxes go up on everyone as scheduled. Then, during the first week of January, lawmakers would strike a quick deal to reduce them except on people in the highest brackets. They would also pass a measure putting off the $109 billion in automatic spending cuts that most lawmakers want to avoid.  Americans’ optimism that Obama and congressional leaders will reach a budget agreement before January 1 has waned in recent days. “We’re paying attention, we’re greatly disappointed in what’s going on and we deserve better,” Starbucks Chief Executive Howard Schultz told Reuters.

Temporary Relief on Debt Ceiling as Limit gets hit by 31 Dec 2012:

To avoid defaulting on the national debt if the budget crisis spins out of control, the Treasury Department announced measures essentially designed to buy time to allow Congress to resolve its differences and raise the debt borrowing limit. Treasury Secretary Timothy Geithner said yesterday that the US will reach the $16.4 trillion Debt Ceiling at the end of December. Geithner wrote in a letter to Senate and House leaders that the Treasury will soon undertake accounting maneuvers to create $200 billion in “headroom” that will delay a violation. It was unclear how long this headroom would last, he said, because tax and spending policies for 2013 are still under negotiation as part of talks to avert the so-called Fiscal Cliff. Such maneuvers would usually run for about two months, but if a deal on the Fiscal Cliff is not reached, the extraordinary measures could last longer, according to Geithner. “Treasury will provide more guidance regarding the expected duration of these measures when the policy outlook becomes clearer,” he added. Congress must act to raise the Debt Limit. Republicans have said they want to use the Debt Ceiling approval to win concessions on spending from the White House. To summarize: Debt Ceiling hit December 31, just in time for the no deal on the Fiscal Cliff, and then the Treasury will proceed to defund various Government retirement accounts for the next two months or some more, when sometime in March the true deadline to getting a joint solution on both the Fiscal Cliff and the Debt Ceiling will becoming un-extendable as the alternative is truly unthinkable. So the Real & Final Deadline for the Fiscal Cliff is in March when all further Debt Ceiling extension avenues are exhausted. Will the US witness a mini recession till then or will this also lead to some more QE?

geithner letter


follow Commodity Trade Mantra on Facebook follow Commodity Trade Mantra on Twitter follow Commodity Trade Mantra on LinkedIn follow Commodity Trade Mantra on Google+

For More details on Trade & High Accuracy Trading Tips and ideas - Subscribe to our Trade Advisory Plans. : Moneyline

Print This Post more from market insights >>
Share