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You are here:Home>>Strategic Research & Analysis>>President Obama and Speaker Boehner on The Fiscal Cliff
Saturday, 17 November 2012 14:52

President Obama and Speaker Boehner on The Fiscal Cliff

Written by Dr. Charles C. Mbonu
House Speaker John Boehner and President Barack Obama. Carolyn Kaster/AP House Speaker John Boehner and President Barack Obama. Carolyn Kaster/AP



The fiscal cliff is the result of a do nothing Congress intent on stopping the President from getting a second term, and President Obama's inability to create any bipartisan movement during his first term. So on January 2, 2013, to reduce the budget deficit, $530 million in tax increases will combine with massive spending cuts. This was a short term plan President Obama made with the Republican Congress. If this happens, the economy will fall into a deep recession meaning unemployment could rise to above 12%, and the whole world economy could fall apart. Most of Europe is in a recession and the economies in China and India are beginning to slow significantly.  An American recession would have catastrophic effects internationally as well as in this country.


The good news is that the re-election of President Obama deflates the do nothing agenda of the Republicans. Doing nothing means Republicans will be responsible for the national and world economy collapsing. So hopefully Congress is motivated to finally do something. And while the President has always attempted to compromise, now Speaker of the House, John Boehner, has indicated that he is open to compromise. The biggest obstacle to reform and compromise are the extreme right wing Republicans and Tea Party members who advocate no new taxes of any kind. Ironically, should these extremists refuse to compromise and stall progress, then taxes will be raised and spending cuts will be implemented. 5 Key Pieces of the Fiscal Cliff:


1. Expiration of the Bush Tax Cuts. Tax changes ratified in 2001 and 2003 are set to expire at the end of this year. If they do expire, the top tax rate rises from 35% to 39.6%. and all other income brackets also rise. The child tax credit is cut in half and taxes on capital gains rise. Potential Cost to the Economy $110 billion.


2. End of Payroll Tax Holiday and Extended Unemployment Benefits. In February, President Obama signed a continuation of a 2% payroll tax holiday and extended the number of weeks a worker can receive unemployment benefits. These are both set to expire on December 31. Potential Cost to the Economy $115 billion.


3. Reduction in Medicare Payments to Doctors. Lawmakers have delayed for years the Sustainable Growth Rate Formula. This requires a substantial reduction in Medicare payments to physicians. If this change is not delayed again, Medicare payments to doctors will drop 27.4%.  Potential Cost to the Economy $10 billion.


4. Introduction of Automatic Spending Cuts. Stating January 2 across the board spending cuts take effect because the congressional super committee failed to reach a budget deal. Defense spending will be cut nearly 10 %, non discretionary spending falls about 8% and Medicare payments to providers fall 2%. Potential Cost to the Economy $65 billion.


5. Debut of Obamacare Taxes The Patient Protection and Affordable Care Act includes several tax increases, including a 1% increase in payroll taxes on high earners.  Potential Cost to the Economy $25 billion.


To avoid disaster the President will need to convey to Congress his reelection mandate. The American people have chosen to not fund the recovery on the backs of  he middle class and poor. Instead, the highest earners in society who have recently benefited the most from the Bush tax breaks will pay a little more.  This is the will of the people. Speaker Boehner and President Obama will need to be strong leaders and move this country in a direction consistent with the vote of the people.


Dr. Charles C. Mbonu writes from USA





Last modified on Saturday, 17 November 2012 15:20

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