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Cliff Notes: Where the Sidewalk Ends

Posted: December 27, 2012 at 12:00 pm   /   by


Days away from the fiscal cliff, Treasury Secretary Timothy Geithner dropped the bombshell that we’re also scheduled to hit the $16.4 trillion debt limit on December 31. Seemingly incapable of ending the posturing, Washington is falling back on a well-worn strategy of waiting until the last minute. Meanwhile, financial markets are thrown into chaos and business owners large and small are paralyzed with uncertainty over what the future will bring. And we wonder why the economy is still struggling to stay afloat.


Debt Limit Fast Approaching, Cliff Deal “Virtually Impossible Before The New Year:”

U.S. Will Hit Debt Limit On Dec. 31. “Treasury Secretary Timothy F. Geithner announced Wednesday that the debt will hit the $16.4 trillion cap on Dec. 31, leaving roughly two months for Congress to raise it or default on the nation’s obligations.” (Lori Montgomery and Paul Kane, “On ‘Fiscal Cliff,’ Obama And Senators Returning To Washington For One Last Attempt At Deal,” The Washington Post, 12/26/12)

“Nearly All The Major Players In The Fiscal Cliff Negotiations Are Starting To Agree On One Thing: A Deal Is Virtually Impossible Before The New Year.” (Manu Raju and Jake Sherman, “Fiscal Cliff Deal Increasingly Unlikely,” POLITICO, 12/26/12)

  • MIXED MESSAGES: Treasury Department Tells Staff Not To Worry About Fiscal Cliff. “The Treasury Department is telling its staff not to worry about the ‘fiscal cliff,’ an internal memorandum sent to all employees reveals. The memo, which is signed by the deputy secretary of the treasury, Neal S. Wolin, states that ‘there is no reason why both sides should not be able to come together’ to reach a deal.” (Daniel Halper, “Treasury Dept. Tells Staff Not To Worry About ‘Fiscal Cliff,’” The Weekly Standard, 12/26/12)


Congress Hasn’t Done Much Since Leaving For Christmas Break:

Senate Leadership Hasn’t Spoken Since Before Christmas. “But senior aides in both parties said Majority Leader Harry M. Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) have not met or even spoken since leaving town for the weekend.” (Lori Montgomery and Paul Kane, “On ‘Fiscal Cliff,’ Obama And Senators Returning To Washington For One Last Attempt At Deal,” The Washington Post, 12/26/12)

The House “Abdicated Responsibility For Resolving The Crisis” Last Week. “If anything, hope for success appeared to have dimmed over the Christmas holiday. The Republican-controlled House last week abdicated responsibility for resolving the crisis, leaving all eyes on the Senate.” (Lori Montgomery and Paul Kane, “On ‘Fiscal Cliff,’ Obama And Senators Returning To Washington For One Last Attempt At Deal,” The Washington Post, 12/26/12)

“With No Sign Of Urgency, Aides In Both Parties Predicted That Failure Was Not Just A Possibility — It Was Rapidly Becoming The Most Likely Outcome.”(Lori Montgomery and Paul Kane, “On ‘Fiscal Cliff,’ Obama And Senators Returning To Washington For One Last Attempt At Deal,” The Washington Post, 12/26/12)

Last Minute Deals A Hallmark Of The Obama Administration:

President Obama Signed Debt Limit Deal Just Hours Before Default. Hours before the U.S. faced a first-ever default, President Obama signed into law a compromise deal that averts a crisis by raising the debt limit, but signaled that he will not abandon his stalled efforts to raise taxes on the wealthy. (Devin Dwyer, “Debt Ceiling Deal: President Obama Signs Bill as Next Fight Looms, ABC News, 8/2/11)

  • S&P Downgrades U.S. Credit Rating. “Credit rating agency Standard & Poor’s … downgraded the credit rating of the United States, stripping the world’s largest economy of its prized AAA status. In July, S&P placed the United States’ rating on ‘CreditWatch with negative implications’ as the debt ceiling debate devolved into partisan bickering.” (Charles Riley, “S&P Downgrades U.S. Credit Rating,” CNN Money, 8/5/11)

Showdown Over Health Care Act Ran Up To Christmas Eve. “With the final vote on the Patient Protection and Affordable Care Act slated to start after sundown Dec. 24, senators and hundreds of their health policy analysts, press secretaries and other aides — not to mention the universe of police officers, clerks and student pages who keep the place humming — wishing to be with their families will instead spend the holiday in Washington. And there’s a possibility the Senate could be called back next week, to take up debt-limit legislation.” (Philip Rucker, “Health-Care Vote Means Senators Will Spend Christmas Eve At The Capitol”, The Washington Post12/22/09)


Most Vulnerable Could Be Hardest Hit:

Low- And Moderate-Income Taxpayers To Face Biggest Burden. “[I]n terms of percentage of tax increases, low- and moderate-income taxpayers will face the biggest burden—an often-overlooked part of the budget debate that’s now getting attention as the year-end deadline nears. Households earning $10,000 to $20,000 would see a large increase in their overall federal tax burdens, from an average of $68 to $605. The blow would be especially harsh for married couples and households with children.” (John D. McKinnon, “Cliff Would Strike Low Incomes Hard,” The Wall Street Journal, 12/24/12)

Fiscal Cliff “Clobbers Low-Income Households With Children.” “The fiscal cliff ‘clobbers low-income households with children,’ said Roberton Williams, a senior fellow at the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute. ‘It is striking how large some of the increases are.’ A household that makes between $10,000 and $20,000 in income and has a child would get a $2,761 payment from the Internal Revenue Service under current rules, thanks to various tax breaks and credits. After the cliff, that would be cut by $1,324, or about half.” (John D. McKinnon, “Cliff Would Strike Low Incomes Hard,” The Wall Street Journal, 12/24/12)

Economic Indicators Already Showing Impact Of Cliff:

USA Today: “U.S. Stocks Join Worldwide ‘Cliff’ Selloff.” “Stocks fell Friday as worries about the U.S. fiscal cliff weighed on world markets. Shortly after the open in New York, the Dow Jones industrial average and S&P 500 index were down 1%, the Nasdaq composite index wa off 1.7%.” (John Waggoner, “U.S. Stocks Join Worldwide ‘Cliff’ Selloff,” USA Today, 12/21/12)

Fiscal Cliff Could Result In Another Credit Downgrade. “Ratings firm Fitch said on Wednesday it is more likely to strip the United States of its triple-A status if a political deal is not reached to halt $600 billion of spending cuts and tax hikes set for early next year. ‘Failure to avoid the fiscal  cliff … would exacerbate rather than diminish the uncertainty over fiscal policy, and tip the U.S. into an avoidable and unnecessary recession,’ Fitch said in its 2013 global outlook, published on Wednesday.” (Marc Jones, “Fitch Warns Fiscal Cliff Could Cost U.S. Its Triple-A Rating,” Reuters, 12/19/12)

Business Leaders Frustrated With Fiscal Cliff Talks. “A long line of America’s top chief executives have rotated through Washington in recent weeks, loudly urging lawmakers and the White House to reach a broad deal to fix the budget. They once sounded optimistic. Now many of them aren’t talking, and if they are, they’re gloomy.” (Damien Paletta, “CEOs Frustrated with Fiscal Cliff Standstill,” Wall Street Journal, 12/21/12)

  • “Pitiful And Embarrassing.” “Mark Bertolini, chief executive of health-insurance company Aetna Inc., called the state of play ‘pitiful and embarrassing,’ saying the chances are growing that a deal might not be reached by the end of the year to avert $500 billion in tax increases and spending cuts.”  (Damien Paletta, “CEOs Frustrated with Fiscal Cliff Standstill,” Wall Street Journal, 12/21/12) is an educational project of Public Notice, an independent, nonpartisan, non-profit, 501(c)(4) organization dedicated to providing facts and insight on the effects public policy has on Americans’ financial well-being.

Cliff Notes: Where the Sidewalk Ends