US: Next round, debt ceiling

The stock market is ecstatic this morning – the situation is saved - they've managed to kick the can a few feet down the road

Congress's messy fiscal cliff vote sets stage for showdown over debt ceiling

With Boehner unable to control House's Tea Party Republicans, Obama warns next debate will have 'catastrophic' consequences

the Guardian,

2 January, 2013

The White House and congressional Republicans were gearing up for even bigger economic showdowns after a messy compromise on the fiscal cliff crisis was finally agreed by the House of Representatives

The fiscal cliff deal, passed after days of disarray that highlighted the extent of the partisan divide in Washington, raised taxes on the wealthiest but postponed for two months a decision about $110bn in spending cuts to the federal budget.

The fudge is almost certain to put the White House and Congress at loggerheads again next month or in early March. As well as the looming battle over spending cuts, the two sides also face a stand-off over raising the federal debt ceiling.

President Barack Obama, who arrived back in Hawaii on Wednesday to resume his interrupted holiday, hailed the fiscal cliff deal as the fulfillment of an election promise to raise taxes on the rich.

But he spent little time savouring the moment, instead devoting much of his statement on the congressional vote to the battles ahead.

Expressing his frustration with Republicans in Congress, he warned that failure to raise the debt ceiling would be dire. "The consequences for the entire global economy would be catastrophic, far worse than the impact of a fiscal cliff," he said.

The new 113rd Congress is scheduled to begin work on Thursday, but the November election left its make-up virtually unchanged from its predecessor. The Republicans retain a majority in the House and the Democrats a majority in the Senate.

Larry Sabato, director of the University of Virginia's Center for Politics, is pessimistic, viewing the fiscal cliff showdown as unnecessary and anticipating future collisions. "This whole thing is trumped up," Sabato said. "We've known about the fiscal cliff for 17 months. There's no excuse for what's happened. It's pitiful, and it's going to happen again."

He said the two sides remained polarised. "The parties don't speak the same language. It's very clear that the Republican caucus does not like President Obama personally. There's no deference to an election victory. We always used to have that. You got a bit of a honeymoon and a bit of a mandate when you won an election. And now there's nothing."

Tuesday proved to be an especially bad day for the Republicans. The vote in the House exposed the depth of divisions not only between Democrats and Republicans but within the Republican party. In the House, the bill was passed by 257 to 167, but the breakdown on party lines showed 151 Republicans voting against the measure, with only 85 Republicans in favour of it.

The divide cut through even the party leadership in the House, with speaker John Boehner voting for it, and the majority leader Eric Cantor and the whip Kevin McCarthy, both more conservative figures than Boehner, voting against.

Republicans expressed anger with Cantor and McCarthy for earlier calling on colleagues to rally behind Boehner in voting for the bill and then doing the opposite themselves.

Many Republicans, especially those backed by the Tea party, want to remain ideologically pure, able to go back to their districts saying they had not voted for tax increases.

Boehner's inability to control his own caucus, in particular the Tea party bloc, is one of the reasons politics in Washington has become so divisive. He is up for re-election for speaker soon after the new Congress convenes at noon Thursday, but so far, there is no suggestion that Cantor or any other Republican plans to mount a challenge.

Illustrating the extent to which personal relations have broken down, the Politico website reported a confrontation in the midst of the fiscal cliff negotiations last Friday in which Boehner told the Democratic leader in the Senate, Harry Reid: "Go fuck yourself."

Boehner is reported to have made the comment in the lobby after Reid had publicly said he was more interested in securing re-election as speaker than reaching a deal.

The House passed the bill only after a day of rancorous deliberations, despite the Senate having voted overwhelmingly in favour of it, by 89 votes to eight, in the early hours of the morning.

The bill restricts tax rises to individuals earning $400,000 or more a year and households earning $450,000 or more. Estate tax also rises, to 40% from 35%, but inheritances below $5m are exempted from the increase. Benefits for the unemployed are extended for another year.

AP calculates that for those earning between $500,000 to $1 million a year it will mean an average tax increase of $14,812 and for those earning more than $1 million, $170,341.

Obama, in his statement from the White House, recalled that in the last showdown over the debt ceiling in 2011, the federal government almost shut down. He said that he did not want to repeat that situation and would leave the latest debt ceiling debate to Congress rather than becoming directly involved.

In the end, it is difficult to see how the White House can remain aloof, given the consequences of the US being unable to meet its debt obligations.

The president expressed concern that repeated battles with Congress over the economy will eat into time that he hoped to use to push through his second-term agenda.

"We can settle this debate, or at the very least, not allow it to be so all-consuming all the time that it stops us from meeting a host of other challenges that we face: creating jobs, boosting incomes, fixing our infrastructure, fixing our immigration system, protecting our planet from the harmful effects of climate change, boosting domestic energy production, protecting our kids from the horrors of gun violence," the president said.

US taxes to go up in 2013 regardless of 'fiscal cliff' deal

President Barack Obama wasn’t lying when he said he’d raise taxes on the wealthiest Americans if reelected — but it won’t be just the top wage-earners who will be handing over more to Uncle Sam in 2013

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Reuters / Stephen Lam

RT,

2 January, 2013

Under a last minute Capitol Hill agreement expected to avert the much-feared ‘fiscal cliff’ disaster that has dominated politics in recent weeks, working Americans across the board will see a little extra of their income collected in the form of a federal tax starting immediately. No matter what your annual salary may be, US workers will have to part with an additional 2 percent of their paycheck in order to cover the cost of Social Security.

While Congress did act in a matter that will keep income taxes from rising on middle-America, in doing so they allowed a temporary reduction in the Social Security payroll tax that was enacted under President George W. Bush to expire. Extensions on that tax break have allowed Americans to hold onto more of their income during the last several years in lieu of sending it to cover the cost of the Social Security welfare program, financed by a 12.4 percent tax on wages up to $113,700. During 2011 and 2012, Bush-era tax cuts kept the share of US workers’ at only 4.2 percent, with employers responsible for the rest. That reduction expired on Wednesday, however, and with no action taken by Congress it will increase to its old standard.

Starting immediately, US workers will lose 6.2 percent of their paychecks in order to fund Social Security. The Associated Press says this will cost a typical American family earning $50,000 annually around $1,000 in 2013.

The Tax Police Center, a nonpartisan think-tank based in DC, expects that the return to the 6.2 percent standard will see an extra $100 billion added to the economy in the new year. According to the AP, that won’t mean too much to lower- and middle-class America, but will impact the paychecks of top wage earners but quite a bit: households earning over $1 million annually will see their taxes increase by around $170,000 because of the expiration.

"If you're rich, you're almost certain to get a big tax increase," Roberton Williams of the Tax Policy Center explains to the AP.

Meanwhile, the majority of Americans will be spared by tax hikes elsewhere. The last minute deal agreed on by the House and Senate will see income taxes go up for individuals making over $400,000 a year and families earning over $450,000. Those wage earners will see their income taxes go up from 35 percent in 2012 to 39.6 percent in 2013.

Even when all is said and done, though, it won’t be an ending that Washington will be able to call a certain success. The Congressional Budget Office says the fiscal cliff deal hammered out this week will add around $4 trillion to the national deficit during the next decade.


From "Mish" Shedlock - 

Republicans Prepare to Wave White Flag Again, This Time On Debt Ceiling; "Temporary, Partial, Non-Threats"

Global Economic Analysis,

2 January, 2013

Having totally collapsed on deficit reductions in fiscal cliff non-negotiations (agreeing to a mere $12 billion in cuts down from an Obama offer of $600 billion), Republicans are already offering signs they will once again wave the white flag when it comes to the alleged battle over the debt ceiling.

Reuters reports Bigger fights loom after "fiscal cliff" deal. 

 President Barack Obama and congressional Republicans looked ahead on Wednesday toward the next round of even bigger budget fights after reaching a hard-fought "fiscal cliff" deal that narrowly averted potentially devastating tax hikes and spending cuts.

Retreat, Retreat, Then Surrender

Let's stop right there for a second. What "hard fight" was there?

It certainly took a lot of time to reach a deal, but there never was much of a fight. Every day Republicans offered more and more concessions until deficit reductions were whittled down to a mere $12 billion or so from a starting point of $600 billion. 

Senate Republicans immediately waved the white flag of surrender as only 5 Republicans voted against the deal. Please see Obama Deal Adds $3.97 Trillion to Deficit Over 10 Years; Only 5 Republicans Voted Against; White-Flag Surrender for details.

This was a pathetic case of retreat, retreat, then surrender, with every retreat making the president more confident he would get his way.

Reuters continues ... 

 [The fiscal cliff agreement] set up political showdowns over the next two months on spending cuts and on raising the nation's limit on borrowing. Republicans, angry the deal did little to curb the federal deficit, promised to use the debt ceiling debate to win deep spending cuts next time.

"Our opportunity here is on the debt ceiling," Republican Senator Pat Toomey of Pennsylvania said on MSNBC, adding Republicans would have the political leverage against Obama in that debate. "We Republicans need to be willing to tolerate a temporary, partial government shutdown, which is what that could mean."

Opportunity to Surrender Again

There is no opportunity here. Read the paragraph carefully to see if you can spot the crucial words. 

In case you missed it, the crucial word is "temporary". More specifically the crucial phrase is "willing to tolerate a temporary, partial government shutdown, which is what that could mean".

The word "temporary" is pathetic enough. But Toomey goes even further, adding the word "partial". 

Temporary, Partial, Non-Threats

Who is supposed to fear a "partial, temporary" shutdown? Anyone?

Sadly, Republicans are already signaling they are prepared for more temporary threats coupled with more permanent can-kicking exercises.

The wimpy language bantered about by Republicans before debt ceiling debate even begins suggests the safe thing to do is prepare for more retreats and more white flags.