Obama, Boehner launch fiscal cliff endgame

The “fiscal cliff” end game… If there’s going to be a deal, Obama, Boehner, and Congress need to start the heavy lifting ASAP… Kristol vs. the Wall Street Journal on caving on the tax rates… Motoring! Obama delivers remarks at 2:00 pm ET at a Detroit Diesel plant in Redford, MI… And in Michigan, the president will set foot in the state featuring the nation’s latest labor battle… The hits keep on coming for Susan Rice… The upcoming immigration push… Hillary and 2016… And meet Markwayne Mullen.

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By Chuck Todd, Mark Murray, Domenico Montanaro, and Brooke Brower

*** The end game: We’ve told you that the last couple of weeks in Washington’s fiscal debate have mostly been about P.R. and posturing. Like a student in college or a reporter working in the news business, the real work in Congress typically doesn’t happen until there’s a real deadline that’s rapidly approaching. Well, we’ve now entered that deadline phase in the negotiations between President Obama and House Speaker John Boehner. If the plan is to get something passed by Friday, Dec. 21 (right before the Christmas holiday), then the legislation has to be written by Dec. 18. And that means that Obama and Boehner must reach an agreement by Dec. 14-15, if there’s going to be a deal. So the time for posturing and P.R. is over. This week, we’ve reached the phase where both sides will begin rolling up their sleeves to do the heavy negotiating. Both Obama and Boehner know this, which is why they did meet behind closed doors yesterday. The question now is: Will there be a BIG deal that includes serious entitlement hits in addition to major tax reform? Or will it be JUST taxes and a punt until the debt ceiling? There’s not much of an “in between” at this point.  Keep reading >>

Allen West: Negotiating with 'Marxist' President is 'Silly'

Foxnews

Allen West was on with Mark Levin last night in what I think was one of his better interviews. Not only did Levin put West on the spot and really press him on his future, but West weighed in on this debate over the ‘fiscal cliff’ saying that the House should be passing good policy and not negotiating with a “Marxist, Socialist, rigid ideologue” like Obama. He says that instead of Obama telling people how he’s going to give them $2,000 by keeping their taxes low, West says Obama should be telling them how he’s decimated the median family income by $4,000 through printing money and inflation.

On his future, West said he’s gotten good offers and he has no plans to stop fighting for this country. Levin called him a “national treasure” and implored him to remain in public service.

Boehner: ’No progress’ toward resolving fiscal cliff

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The Engineered Fiscal Cliff

TheAlexJonesChannel On the Sunday, December 2 edition of the Alex Jones Show, Alex breaks down the ongoing effort by the international banksters to take down the United States with their relentless economic warfare and long-term effort to consolidate power and foist a centralized globalist government on the nation and the world as a whole. He talks about the so-called "fiscal cliff" currently under negotiation behind closed doors by the corporatist one party system and what it means to the future of a withering middle class and America as a whole as an engineered astronomical debt piles up and the value of the dollar slides toward the abyss.

Analyst Slams 'One Of The Most Dangerous Ideas Circulating In Washington'

Joe Weisenthal 

businessinsider.com

On Bloomberg TV this morning, columnist Josh Barro expressed alarm that more and more liberals are saying: "Just go over the cliff."

BofA/ML analyst Ethan S. Harris is not a fan.

We’ve written about this before, but it bears repeating: One of the most dangerous ideas circulating in Washington is that it is okay to go over the cliff temporarily. This increasingly popular view is that going over the cliff will make it possible to strike a better deal.

Harris is correct that this idea is circulating more and more. Liberals like it because the thinking is that it will force the GOP to be in the position of taking the blame for the tax hikes, and that they will have to capitulate on lowering taxes on the middle class, while leaving the tax hikes in place.

Even if you assume that we could go slightly into January without harming the economy much, Harris sees four reasons to be skeptical

They are:

• It's a contradiction that going over the cliff will induce a deal without hurting the economy. If we don't feel pain, what induces the deal? If we do feel pain, then it was a blunder.
• There's no reason a better deal would happen post cliff. More likely going over triggers a blame game.
• The GOP may take a hard line on reversing spending cuts.
• Going over the cliff will represent a dangerous way Washington does business.

What we really need is some number that indicates the kind of damage going into January could do to the economy.

But Harris makes interesting points, especially on the matter of assuming that a deal would be easy once we go over. It could make both parties dig in and wait until there's real damage.

SEE ALSO: If we go off the Fiscal Cliff, the GOP will get blamed >

Read more: http://www.businessinsider.com/bank-of-america-on-one-of-the-most-dangerous-ideas-circulating-in-washington-2012-12#ixzz2E6H4ULQP

Income tax rates just one piece of Obama proposal

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By Tom Curry, NBC News national affairs writer/

In the debate over how to avoid going over the “fiscal cliff” of tax increases and spending cuts, much rhetoric has focused on what President Barack Obama is proposing to do on income tax rates, but that’s just a part of the overall revenue total the president proposed raising from higher-income earners in his budget blueprint.

Obama wants the top two marginal income tax rates to be 39.6 percent and 36 percent, instead of the current 35 percent and 33 percent.

But increasing the tax rates that apply to upper-income people is only a part -- less than a third -- of his longer-term tax proposal.

In the short run, Obama is urging the House to take up a one-year tax measure which the Senate OK’d earlier in the year on July 25.

“The Senate has already passed a bill to keep income taxes from going up on middle-class families,” Obama said in his weekly radio address on Saturday. “Democrats in the House are ready to do the same thing. And if we can just get a few House Republicans on board, I’ll sign this bill as soon as Congress sends it my way.”

He said once that bill is signed, then “we’ll have more time to work out a plan to bring down our deficits in a balanced way – including by asking the wealthiest Americans to pay a little more.”

Monday's Gaggle, which includes, The Chicago Tribune's Clarence Page, The New York Times' Jeff Zeleny and Republican pollster Kristen Soltis, talk about the discussions surrounding around the fiscal cliff.

That Senate-passed bill which Obama wants the House to pass would do the following for one year, 2013:

• Extend income tax rates enacted in 2001 for individual taxpayers making less than $200,000, for heads of households making less than $225,000 and for married couples filing a joint tax return who make less than $250,000 a year.
• Raise the top income tax rates on taxpayers above those thresholds to 36 percent and 39.6 percent.
• Increase the tax rate from 15 percent to 20 percent on dividend income and capital gains income for taxpayers whose income exceeds the threshold amounts above.
• Extend for a year the American Opportunity tax credit, a temporary tax break to offset college expenses which was enacted in the 2009 stimulus law, and extend for a year several tax breaks for low-income people which were part of the 2009 stimulus.
• Extend for one year the $1,000-per-child tax credit.

Altogether, the Senate bill would reduce tax revenues by about $250 billion, compared to the amount that would be collected if the current tax law expires as scheduled at the end of the year.

But as Obama said Saturday, he wants to enact longer-term tax changes.

And his most detailed public offer on tax policy can be found in his Fiscal Year 2013 budget proposal and the July update of that proposal.

If Congress were to enact the Obama tax rate proposal, that is, reinstate the 36 percent and 39.6 percent income tax rates for single taxpayers making more than $200,000 and for married couples making more than $250,000, the president's Office of Management and Budget says it would reduce cumulative budget deficits over 10 years by nearly $430 billion.

To put that $430 billion in perspective, the deficit for fiscal year 2012 was $1.1 trillion. So the ten-year total of revenue gained from raising income tax rates on higher-income people -- $430 billion  -- wouldn't eliminate one year's deficit, much less the deficits for the next ten years. More >>

Republicans offered own proposal to avert 'fiscal cliff'

By Luke Russert and Michael O’Brien, NBC News/

Republicans offered up their own proposal to avert the impending “fiscal cliff” on Monday amid Democratic demands that the GOP match the Obama administration’s plan with one of their own.

In a letter to President Barack Obama, House Republican leaders outlined the contours of a deal they said would achieve a net savings of $2.2 trillion. The plan, which is based on fiscal commission Democratic co-chairman Erskine Bowles’s proposal to the super committee, would achieve these savings through revenue from tax reforms, health savings and discretionary spending cuts.

"Going over the cliff will hurt our economy and hurt job creation in our country. It’s one of the reasons the day after the election I offered a concession to try and speed this process up. Unfortunately, the White House responded with their ‘La-La-Land’ offer that couldn’t pass the House or Senate and was basically the president’s budget from last February," House Speaker John Boehner told reporters on Capitol Hill at a briefing detailing the plan.

 

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Obama's negotiator urges Republican leaders to offer ideas on averting fiscal cliff

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Avoiding a Debt Crisis, Eh? Lessons From Canada

The Foundry

Paul Bremmer 

Congressional lawmakers met last week to try to hammer out a deal to avert the fiscal cliff. Democrats insist on revenue increases as part of such a deal, saying new revenue is the only way to significantly reduce the national debt. However, it is not a lack of revenue that is driving U.S. debt; it is unrestrained federal spending. American lawmakers looking to solve America’s looming fiscal crisis need not look further than Canada.

Highlighted at a recent Cato Institute conference, our neighbor—and competitor—to the north serves as a good example of what it takes to return to a strong economy. The Great White North has turned around its fiscal situation and is now experiencing financial stability and economic growth.

In Canada, federal spending has been trending downward since 1993, according to Cato’s Chris Edwards. Canadians have cut spending in virtually every area except health care. The federal government now accounts for only 38 percent of total government spending. In the U.S., by contrast, the federal government accounts for 71 percent of total government spending.

The Canadian government, among other changes, altered benefit schedules for the Canadian Pension Plan to reduce the total amount of benefits paid.

In a similar vein, The Heritage Foundation suggests a variety of benefit changes to Social Security that would strengthen the program’s finances, for example, by raising the eligibility age slightly and replacing cost of living adjustments with the Chained Consumer Price Index for a more targeted measure of inflation in consumer goods. Bolder changes include gradually introducing a flat benefit that targets scarce resources to those seniors who need them the most and provides all seniors with protection from poverty in retirement.

Canada also cut corporate income tax rates. The U.S. has the highest rate among its competitors in the industrialized world. The combined federal and state corporate rate in the U.S. is over 39 percent. Canada now has a combined rate of only 25 percent.

Contrary to popular expectations, lower corporate tax rates have not resulted in significantly reduced corporate tax revenue in Canada. Instead, corporations based in Canada have reported more income since lower tax rates went into place. And Canada is experiencing low unemployment and a strong Canadian dollar.

The Heritage Foundation’s New Flat Tax would replace today’s complex tax system for individuals and business with a simple, neutral, and transparent tax system that would allow America to achieve its full economic potential.

Europe has not followed Canada’s example, and the resulting severe debt crises are sending people to the streets in an outbreak of violent protests. Out-of-control government spending and deficits have resulted in massive borrowing, which has led to bailouts for many European countries.

High levels of spending on social welfare programs are at the heart of the problem. Greece, for example, spent 42 percent of its federal budget on social benefits in 2009, according to Aristides Hatzis from the University of Athens. Spain is slated to spend 63 percent of its budget on social expenditures in fiscal year 2013, according to Pedro Schwartz from Universidad San Pablo CEU.

Here in the United States, we have all the ingredients necessary to create a similar debt crisis in the not-so-distant future. Over the past four decades, federal spending has increased 288 percent, nearly quadrupling in real terms. Thirty-two cents out of every dollar spent was borrowed in 2012. Debt held by the public is a staggering 73 percent of GDP, and our government has run trillion-dollar budget deficits four years in a row.

In less than 10 years, the U.S.’s publicly held debt will surpass the size of the entire U.S. economy and is projected to continue skyrocketing from there. (continues below chart)

To make matters worse, there is a dark demographic cloud on the horizon. In all Western nations, the proportion of older people as a share of the population is increasing. In the U.S., baby boomers are increasingly reaching retirement age, and in Europe, fertility rates are well below replacement level. As the populations of these countries age, entitlements will eat up an ever-increasing share of federal spending and place a greater strain on a smaller share of working-age taxpayers.

Solving America’s spending and debt challenges is possible. Canada’s example illustrates some of the steps this will take—including major cuts to federal spending, tax reform, and entitlement reform. If our leaders can find the courage to pursue this path, we can avoid an economic collapse and Save the American Dream. 

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Paul Bremmer is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm.

Greenspan: Markets will crater if fiscal cliff unsolved

(Bloomberg) Allowing taxes to rise would be a small price to pay to get U.S. lawmakers to accept spending cuts on entitlement programs, even if it leads to a “moderate recession,” former Federal Reserve Chairman Alan Greenspan said today during an interview on Bloomberg Television and also at a panel discussion in Washington.

“Even if we have to pay the cost of a significant rise in taxes to get a significant slowing, and then decline, in social benefits that is a very cheap price,” Greenspan said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “A large increase in taxes required to fund what is currently in the books is going to cause a recession,” he said. “If we can get away with that as the only cost to this whole problem, I think that’s a pretty good deal.”

Marco Rubio on Benghazi and the Fiscal Cliff

SenatorMarcoRubio

The Fiscal Cliff Draws Near

FrontPageMag.com/ Matthew Vadum

Emboldened by his class warfare-fueled reelection victory, President Obama is demanding $1.6 trillion in tax hikes as congressional leaders scramble to prevent the country from falling over the so-called fiscal cliff.

fixthedebt.org

In this high-stakes game of poker, Obama is holding fast to his original budget blueprint, which includes $1.6 trillion in new revenue generated by raising taxes on households earning more than $250,000. Obama’s progressive preening comes as the outgoing 112th Congress meets in a lame duck session to deal with unfinished business. At the top of the list are whether the Bush-era taxes rates should be extended and if the $1.2 trillion in automatic cuts approved by the congressional “super committee” on fiscal affairs will be avoided. If current tax rates are not extended, the already fragile economy will almost certainly nosedive.

Together the tax rate expirations and the spending cuts constitute the fiscal cliff, a term coined by Federal Reserve chairman Ben Bernanke, whose protracted cheap money policy has contributed to the nation’s economic doldrums. Unless Washington comes up with a solution, taxes will skyrocket on New Year’s Day and the planned spending cuts will take effect.

Although the stock market has been rising since Obama took office, buoyed artificially by the Federal Reserve’s protracted easy money policies, market participants have been signaling that the growing national debt is a huge problem. It now stands at $16.2 trillion and climbing, upon from $10.6 trillion on Inauguration Day 2009.

The U.S. dollar is slowly collapsing, eroding Americans’ purchasing power, and the price of gold, historically a barometer of economic anxiety, has doubled since Obama took office, rising from $853.25 an ounce to $1,710.00 as of yesterday.

But President Obama remains as determined as ever to raise taxes. During a Wednesday press conference, Obama said he will not “extend Bush tax cuts for the wealthiest 2 percent that we can’t afford, and according to economists, will have the least positive impact on our economy.”

In a scene perhaps anticipated by the 1979 book, Drunk Before Noon: The Behind-the-Scenes Story of the Washington Press Corps, Obama called on one of the many friendly reporters in the White House audience, CNN reporter Jessica Yellin.

She threw this class-warfare softball at the president: “Mr. President, on the fiscal cliff, two years ago, sir, you said that you wouldn’t extend the Bush-era tax cuts, but at the end of the day, you did. So, respectfully, sir, why should the American people and the Republicans believe that you won’t cave again this time?”

Of course they’re no longer tax “cuts.” They were enacted a decade ago in 2001 and 2003. They are current law, but journalists like Yellin prefer to call them “cuts” in order to de-legitimize them.

President Obama reassured the doe-eyed Yellin that he would hold fast, explaining that his previous support for extending the Bush-era rates “was a one-time proposition.”

“We cannot afford to extend the Bush tax cuts for the wealthy,” he said. “What we can do is make sure that middle-class taxes don’t go up.” Obama may as well have patted Yellin on the head for a job well done.

At the end of the relatively brief media event President Obama showed off for his adoring fans. To the obvious delight of the White House press corps whose members can be heard laughing in a Politico news video, the president smirked and smiled while refusing to answer what sounded like a meaningful fiscal cliff question shouted by Bloomberg reporter Hans Nichols.

“That was a great question, but it would be a horrible precedent for me to answer your question just because you yelled it out,” Obama said. “So thank you very much, guys.” There was love in the East Room that afternoon.

Economic illiterates on the Left such as the leaders of MoveOn and AFL-CIO’s Marxist president Richard Trumka, are keeping the pressure on Obama. They argue that the cliff is a figment of accountants’ imagination. “What we’re facing is an obstacle course within a manufactured crisis that was hastily thrown together in response to inflated rhetoric about our federal deficit,” Trumka said in a speech yesterday.

If Bush-era tax rates in effect since 2001 and 2003 come to an end as scheduled on Dec. 31, “Taxmageddon” –the largest tax increase in U.S. history— will descend on America. Earners at all income levels will be hit by the fiscal hurricane.

The Heritage Foundation defines Taxmageddon as “a one-year $494 billion tax increase slated to strike the economy” on Jan. 1, 2013 that “is made up of several expiring tax policies and the beginning of some major tax increases from Obamacare.” Taxes will be hiked by $3,800 on the average American household in 2013 alone. Taxes levied to pay for Obamacare will be phased in over the following decade but will begin with a hospital insurance 3.8 percent surtax on income over $250,000. The expiration of Bush-era tax rates will account for a third of the tax increases; a quarter, from the expiration of current payroll tax rates.

Taxmageddon will affect middle- and low-income Americans the most because those two groups received 60 percent of the Bush tax cuts. The “patch” on the Alternative Minimum Tax (AMT) will also expire. Taxmageddon will hurt all Americans because it will retard job creation and wage growth.

The cuts in the fiscal cliff fall heavily on the Department of Defense, which faces an automatic across-the-board cut of a $55 billion a year for 10 years.

During the election cycle, many Republicans assumed a strangely Keynesian posture, attacking the Pentagon cuts because they would eliminate jobs. On the other hand they embraced the Austrian school of economics, applauding possible entitlement and welfare cuts while railing against further economic stimulus packages.

They missed the point. Cutting defense spending is not bad because it will harm the economy. In fact, as Milton Friedman argued, government spending for the most part doesn’t benefit the economy. It is inherently inefficient and wasteful. We spend taypayers’ money on defense because we have to – only the government can fulfill that mission – and not to create jobs. The better argument against defense cuts, one that was heard less frequently on the campaign trail, is that with all the challenges America faces abroad, now is not the time to be cutting back on defense.

There is also the prickly issue of the national debt ceiling. Senate Majority Leader Harry Reid (D-NV) said after the election that if the current $16.394 trillion legal limit on federal borrowing needs to be raised in coming months by another $2.4 trillion, “We’ll raise it,” according to CNSNews.com. Many Republican lawmakers, especially those associated with the Tea Party, have said they plan to fight vigorously against such an increase.

Given the political situation, it seems highly unlikely that any reforms to entitlement programs will come out of the lame duck session. Preventing tax increases seems to be the most Republicans can hope to accomplish in the coming weeks.

The day after President Obama won reelection, Boehner seemed receptive to some tax increases. He said House Republicans were willing to consider “some additional revenues via tax reform.” The successful tax reform compromise of 1986 that President Ronald Reagan reached with a divided Congress could be a model for any tax deal that might be reached, he said. “We’re willing to accept new revenue under the right conditions,” he said.

The Speaker took heat from members of the Republican House conference for telegraphing his strategy early and seeming to wave the white flag.

The next day a chastened Boehner said in a TV interview that “raising tax rates is unacceptable.”

“Frankly, it couldn’t even pass the House,” he said. “I’m not sure it could pass the Senate.”

Since Election Day, Senate Minority Leader Mitch McConnell (R-KY) has come out more definitively against tax increases than Boehner has.

With both sides digging in for a fight, right now the odds seem to favor going over the fiscal cliff. Make sure you pack a parachute because it’s a long way down.

Obama claims mandate on taxes

By Michael O'Brien, NBC News

Updated 2:44 p.m. ET - President Barack Obama claimed a broad mandate for his vision on taxes at his first news conference since being re-elected, demanding that his negotiations with Congress yield a specific plan that results in a higher tax burden for the wealthiest Americans.

Speaking Wednesday at the White House, the president said that his recently-concluded campaign against Republican nominee Mitt Romney sent a "very clear message" as to which tax plan Americans prefer. Citing his decisive victory last Tuesday, Obama vowed to stand firm on asking the wealthy to shoulder a greater share of the tax burden.

"There is a package to be shaped, and I'm confident that parties -- folks of goodwill in both parties can make that happen," Obama said. "But what I'm not going to do is to extend Bush tax cuts for the wealthiest 2 percent that we can't afford and, according to economists, will have the least positive impact on our economy."  More >>

What is and How to Solve the "Fiscal Cliff"

MidweekPolitics --Richard Wolff, Economist and Professor Emeritus at the University of Massachusetts, joins David to explain what exactly the so-called "fiscal cliff" now in the news actually is, what the possible outcomes and solutions are, and its potential effect on the economy.

From the Vault: Deficit Deal Stalemate

PBS Newly re-elected, President Obama has to find a way to get a divided Congress to reach an agreement to prevent a fiscal crisis or risk pushing the country into recession. We look in the vault to November 2011 when the the supercommittee failed to reach a budget deal affecting national politics and the economy.

The looming ’fiscal cliff’ -- cataclysm or compromise?

businessweek.com

By NBC's Mike Viqueira

While no can say for sure how the negotiations to avoid the so-called "fiscal cliff" -- the expiration of the Bush tax cuts and impending across-the-board spending cuts -- will unfold, the betting here is it will get ugly before it gets better.

First, virtually no one believes what happened last time will happen this time: President Obama won't cave on extending tax cuts for upper income earners.

So will House Republicans come to the table voluntarily, before the first of the year? Or will it require all hell breaking loose -- an expiration of the income and payroll tax cuts, sequestration, the estate tax, and the AMT kicking in, cap gains and dividend rates rising -- before they are forced to come kicking and screaming to an agreement?  More >>

Republicans, Democrats draw lines in fiscal cliff fight

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Obama's win clouded by looming 'fiscal cliff'

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John W. Schoen, NBC

Congratulations, President Barack Obama. Now you have just 49 days to resolve a $600 billion fiscal crisis that could push the economy back into recession.

The slow, steady improvement in the economy that helped Obama defeat Republican nominee Mitt Romney Tuesday is in peril if he can’t quickly forge agreement with a still-divided Congress on a new budget that delays steep tax increases and deep spending cuts.

The so-called “fiscal cliff” – set to take effect Jan.1 – is a doomsday budget package Congress enacted in 2011 to try to force compromise on a series of bitterly divisive policy choices. The budget package is a witch's brew of harsh measures designed to inflict political pain as widely as possible, the better to prompt all sides to reach the compromise that would prevent it from taking effect.

The law slashes Obama’s popular payroll tax cut, cancels extended jobless benefits, imposes deep cuts in Medicare reimbursements to doctors, exposes millions of Americans to the dreaded Alternative Minimum Tax, eliminates tax deductions for state and local sales taxes and child care tax credits (among others), takes a meat ax to defense spending and slashes “discretionary” spending – on everything from education to homeland security – by as much as 10 percent.

Economists and politicians, including Federal Reserve Chairman Ben Bernanke, have warned it would almost certainly wipe out any progress the White House has made in reviving the economy and creating jobs.

Concern about the fiscal cliff was among the factors driving down stock prices sharply in a post-election slump. The Dow Jones industrial average was down nearly 300 points in its biggest one-day slump in nearly a year, pushing the benchmark index below the 13,000 level before it recovered slightly.

Recent reports have shown the economy picking up strength. Growth in U.S. gross domestic product, though still sluggish, picked up to a 2.0 percent annual pace in the third quarter from a 1.3 percent rate in the second. After a pause this spring, the pace of hiring picked up this summer, with employers now adding some 175,000 new jobs a month to payrolls. Consumers are spending more on big-ticket items, like cars and appliances.

A prolonged budget impasse would reverse those gains. The hit to consumer spending from higher taxes, along with the loss of government spending, would knock 3 to 4 percent from GDP, according to the Congressional Budget Office.

Related: Stocks plunge on worries about fiscal cliff, Europe

"If we go back into recession, we will likely pull the global economy with us," said Ameriprise Financial   economist Russell Price. "The longer a (budget) deal takes, the longer the economy suffers. It’s just that simple."

In their election night speeches, both Obama and Romney hinted that members of the newly elected Congress, who have been gridlocked over the issue for months, need to cross party lines to tackle the problem when they resume business next week.

"In the coming weeks and months, I am looking forward to reaching out and working with leaders of both parties, to meet the challenges we can only solve together,” Obama said.  “We are not as divided as our politics suggests. We’re not as cynical as the pundits believe."

“At a time like this, we can't risk partisan bickering and political posturing,” Romney said. “Our leaders have to reach across the aisle to do the people's work.”

There are some broad signs that a congressional compromise is possible before year-end. An influential group of business economists recently indicated support for some new tax increases to balance the budget. Obama and some Senate Democrats have indicated further cuts are needed in large entitlements like Social Security and Medicare, by far the biggest contributors to budget deficits. A major flash point remains over the White House's insistence on raising tax rates for the wealthiest Americans – those earning $250,000 or more. The White House recently renewed its threat to veto any budget deal that preserves Bush tax cuts for those high-income earners.

As both sides begin to look for a compromise, that contentious issue remains. Despite campaign spending of some $6 billion, voters re-elected a government with virtually the same political make-up as the one that has been deadlocked for years over tax policy.

House Speaker John Boehner, R-Ohio, told reporters Wednesday that House Republicans “want the president to succeed” and urged broad reform of the tax code. But he renewed his party’s opposition to raising tax rates on the upper end of the income ladder. 

“We’re willing to accept new revenues under the right conditions,” he said. “(But) feeding the growth of government with higher tax rates won’t solve the problem.”

Senate Democratic Leader Harry Reid said he was willing to negotiate with Republicans any time on any issue.

"We have to sit down and go to work on it now, not wait. This was really the message the American people sent," Reid said at a Capitol Hill news conference.

If the House remains dug in over the issue of tax increases, compromise with Senate Democrats and the White House will be difficult to reach – even if it means reversing recent progress in mending the economy.

“With neither party gaining much political capital during the elections, both have little choice but to strive for a compromise that prevents the hikes in taxes and cuts in government spending that are due to start sucking $600 billion, or 4 percent of GDP, out of the economy early next year,” economists Paul Dales and Paul Ashworth at Capital Economics wrote to clients Wednesday.

Last minute deal? Ashworth and Dales believe that the impasse will likely be broken at the last minute as Democrats agree to extend the tax cuts for high-income earners and Republicans agree to delay spending cuts.

“So although another recession will probably be avoided, postponing the cliff without tackling the underlying long-term fiscal problems will undoubtedly lead to more credit ratings downgrades early next year,” they said.

The U.S. government's failure to get its fiscal house in order after political gridlock set in during the summer of 2011 prompted Standard & Poor's to take the historic step of downgrading the U.S. credit rating from AAA+, its highest, to AAA. Ratings agency Fitch said Wednesday it might follow suit if a pact is not reached quickly.

Some aren't so sure a compromise will be reached in the lame-duck session.

“The House Republicans are not going to vote for an increase in marginal tax rates,” Tony Fratto, a White House spokesman in the George W. Bush administration, told CNBC. “They're not going to do it. This is what they believe in. This is their economic policy. They don't want to see higher tax rates. And they believe it's bad for the economy.”

Given that resistance, some political observers suggest that the White House may let the budget impasse extend through the first of the year, allowing spending cuts and tax increases kick in.

At that point, with rates at much higher, pre-Bush levels, Obama and Senate Democrats could propose large “tax cuts” – for everyone except the wealthiest - that would still leave revenues higher than they are under current law. That strategy would, in effect, amount to a game of chicken, with the economy the biggest potential loser.

The impact could take time to unfold. While clearly dire in the long run, the economic damage from combined tax increases and spending cuts would be felt gradually in the early months of 2013, according to Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and former economic adviser to the Obama administration.

“The way to think about the fiscal cliff is more of a slope,” he said. “Just going over the fiscal cliff and reversing yourself pretty quickly - the fiscal bungee jump - I don't think it's a good thing, but that's not recessionary.”

Even is a deal if reached, the budget process faces yet another monkey wrench early next year: the looming expiration of the $16.4 trillion debt ceiling. The once-routine process of raising the government’s legal borrowing created the political fracas that produced the fiscal cliff in the first place.

Why companies are sitting on cash

The Economist/ John Micklethwait-Editor-in-Chief

Cash has been piling up on companies’ balance-sheets since before the crisis.

MONETARY stimulus gets you only so far. In America, third-quarter profits and revenues for companies in the S&P 500 index appear to have fallen year on year for the first time since 2009, according to Thomson Reuters. Profits for roughly half the firms in the European Stoxx 600 have fallen short of expectations so far.

Companies in search of a culprit may want to glance in the mirror. Firms are trimming their budgets for everything from technology-consulting services to semiconductor equipment in the face of what Sir Martin Sorrell of WPP, a British advertising and marketing giant, calls four “grey swans” (unlike black swans, people know about grey ones). The four worries unnerving business are: the euro-zone crisis; upheaval in the Middle East; a possible recession in China; and America’s economic health and “fiscal cliff”—the combination of tax increases and spending cuts scheduled to occur at the end of this year.

This is not a new problem. Investment has steadily risen since the recession ended, but not as vigorously as profits. In America, for example, nominal capital expenditure this year (on an annualised basis) has risen by 6% compared with 2007; internal cash flow is up by 32%. Companies have been net suppliers, instead of users, of funds to the rest of the economy since 2008. Firms in the S&P 500 held roughly $900 billion of cash at the end of June, according to Thomson Reuters, down a bit from a year earlier but still 40% up on 2008.

Business leaders and conservative critics cite that cash mountain as proof that meddlesome federal regulations and America’s high corporate-tax rate is locking up cash and depressing investment. But that cannot explain why the same phenomenon prevails worldwide. Japanese companies’ liquid assets have soared by around 75% since 2007, to $2.8 trillion, according to ISI Group, a broker. Cash stockpiles have continued to grow in Britain and Canada, too, to the immense frustration of policymakers there. “Dead money” is how Mark Carney, the Bank of Canada’s governor, has described the nearly $300 billion in cash Canadian companies now hold, 25% more than in 2008. Mr Carney admonished them to “put money to work and if they can’t think of what to do with it, they should give it back to their shareholders.” More >>

Robert Solow: New Ideas for a New World

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Three years after the global financial crisis, some of the biggest names in economics came together with the International Monetary Fund to discuss what we have learned―and what we need to do differently. Hear what Professor Solow, winner of the Nobel Prize in Economics, has to say.