31 December 2012

Will Cliffmas be a Christmas Present?

Cliffmas is a clever term coined by blogger Atrios (Duncan Black) combining Christmas with Fiscall Cliff narrative.

The basic idea is that there was never any reason for Democrats (and certainly Obama) to negotiate with Republicans to avert the so called Fiscal Cliff.

If you don't remember what this entailed, basically Bush tax cuts will expire tonight at midnight and taxes will go up on most Americans. We are talking a very modest increase, as the rates will revert back to what they were under Clinton. Estate taxes and capital gains taxes will be significantly higher though (which is why most large corporations distributed their dividends in December this year).

Along with tax increases there will be substantial sending cuts, most notably on the defense budget. Some long term unemployment benefits will be cut and payroll tax holiday will be over.

The media present this as a catastrophe but I am not sure why it has to be. They claim that with higher taxes consumer spending will slow down and this could lead back to a new recession.

What Cliffmas means, instead of negotiating for a modest rate increase for the highest revenue bracket, Obama would wait for the expiration of Bush cuts. Once the taxes are much higher, companies and 1 percenters would put enough pressure on Republicans to make a deal. If not, Obama could simply pass a new tax cut bill that covers the middle classes.

I understand that Obama has been threatening to do just that, except that he has also been making new offers like moving the tax bracket from $250,000 to $450,000. It is now being reported that the White House is convinced they will have no leverage after January and Obama has already blurted out on Sunday that the offers he made to Boehner would make many Democrats mad at him. Needless to add, Boehner rejected those offers.

I hope that Obama calls the GOP's bluff and let the Fiscal Cliff roll.

But I am almost certain that he will make a last minute deal and will give away the house, as I predicted.

In any case, Happy Cliffmas to everyone.

I hope 2013 will be a better year.

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