There was a great deal of breathless commentary on the Sunday talk show circuit about the pending doom that will befall us all unless we solve the fiscal cliff ASAP. Somehow they managed to squeeze in Fiscal Cliff commentary in between analysis of a Clinton vs. Christie or Clinton vs. Jeb Bush Presidential Race in 2016. I think I made myself a little sick to my stomach when I typed that because we're still in 2012.
As you can see in this Google Trends chart, interest in the Fiscal Cliff has gone parabolic so you can expect lots of Cliff talk along with your Christmas goose this year.
Since everyone is going to start making predictions soon, I'm going to throw out my expectation of what will happen.
There will be a great deal of posturing and maneuvering as we enter the final week of December, but I expect we'll actually not have a deal as of 1/1/13 and we will in a sense fall off the cliff as of that date.
However, I expect the Treasury Secretary to use his power to delay IRS actions and give the White House and Congress time to hammer out a deal.
So now it will be early January and in theory tax rates will be up for everyone as the payroll tax break expires and the Bush/Obama tax cuts expire. However, no one will actually be paying these higher rates because of Geithner's actions, but let's not let facts get in the way.
So, now a GRAND COMPROMISE will be announced which will -
* Extend a payroll tax break AGAIN (like I've said before once you take a hit off the tax break pipe it's hard to give it up).
* A tax hike for those earning $500k and above. However, here's the kicker on this deal. I expect that the new rate might be 37% - higher than the 35% current rate and lower than the 39% that rates are scheduled to move to if the Bush/Obama tax cuts expire. Now, the Republicans can say "Hey, we didn't raise ANY tax rates and we CUT your taxes from 39% to 37%!!! Hastag Winning!" and the Democrats can say "Yes! We raised taxes on those wealthy Americans to make them pay their fair share."
Both statements are technically true but neither is completely honest.
So that leaves us with two big issues still outstanding - spending cuts and the debt ceiling.
1) On spending - I don't think anyone has the guts to do anything here. Just look at the September Food Stamp data that came out today - over 600k new recipients in September alone! Can you find anyone willing to support a 10-15% reduction in military spending? I suspect we'll get an agreement on fluffy, hard to identify cuts (reducing fraud & waste in Medicaid/Medicare, etc) and someone will throw out a huge number that will never be verifiable.
2) The debt ceiling debate is much tougher but I think the Republicans will be able to identify 15-20 safe Republican seats that can vote for a hike in the ceiling. Thus, the majority of the party can still claim to be against raising the debt ceiling but they don't risk further jeopardizing our credit rating.
Well, there you have it. Now you can turn it off the TV talking heads until January 8th when all of this is behind us and we can focus on more important things like who is leading in fundraising in Iowa for 2016 :(