‘TAXMAGEDDON’ WILL HIT 88%, PROMPTING A NEW RECESSION
If the lame duck Congress and President Obama drive over the fiscal cliff on New Year’s eve without passing new tax legislation or extending a host of expiring tax breaks, the average American household would get slapped with a $3,500 tax hike next year, according to a new analysis from the Tax Policy Center. Nearly 7 out of every 8 households will pay higher taxes. No class of Americans would be exempt from so-called Taxmageddon except for the elderly who have no other income besides Social Security. Read more at The Fiscal Times
CANDIDATES FIDDLE WHILE AMERICAN SMOLDERS
The Fiscal Times' Eric Pianin and Josh Boak look at what is likely to be a "fiscal" presidency for the next four years and question how both candidates can remain silent on the greatest issue facing the economy and nation.
"Unemployment, the deficit, immigration, health care reform and women’s reproductive rights all get shout-outs from the two parties. But ahead of the first of three presidential debates on Wednesday, there is barely a murmur about the potentially disastrous effect of the mix of $607 billion of tax increases and across the board spending cuts known as sequestration—the dreaded “fiscal cliff”—that are set to automatically take effect beginning Jan. 2 unless Congress and the White House intervene." Read More at The Fiscal Times
OBAMA ADMINISTRATION: DON’T TELL EMPLOYEES ABOUT LAYOFFS JUST YET
The Department of Labor told federal contractors Friday that it wasn’t necessary to send out WARN letters to employees alerting them of potential lay-offs in the wake of the looming $600 billion budget cuts. The DOL said giving employees notices would create unnecessary anxiety and uncertainty for workers—especially since no one is certain when or even if the sequestration will occur. Read more at Forbes
REPUBLICAN SENATORS PLAN TO BLOCK SEQUESTER SOLUTION
Politico reports a handful of Senate Republicans are planning to block any deficit reduction deal reached before the beginning of the year, which will mean automatic billion dollar cuts across the board. Conservative lawmakers worry that Senate leaders will use the draconian cuts to cut a bad deal and ram it through. Read more at Politico
AN ALTERNATIVE PLAN PROPOSES A $2 TRILLION DEFICIT REDUCTION DEAL
In Taxpayers for Common Sense’s long list of proposed cuts, two of the biggest sources are the mortgage-interest deduction ($645 billion) and defense contractors ($372 billion), which combined make up more than $1 trillion. In a conference call Monday, the group said its proposed reductions were “no-brainers.” But many legislators from both parties likely would disagree. Read more at the Washington Post
INVESTORS PREPARE FOR GRIDLOCK AND NO RESOLVE
Investors projecting a second term for President Obama, are preparing for political gridlock in Washington, assuming very little will be solved resulting in major sequestration cuts. “What troubles investors is that the same cast of characters who fought over raising the debt ceiling last year could be taking up the same task again while debating how best to maneuver around the fiscal cliff.” Read more at the Dallas News
TURNING THE FISCAL CLIFF INTO THE FISCAL BLACK DIAMOND
Pimco’s Libby Cantrill and Josh Thimons play out a new scenario, anticipating a short term deal before the end of the year that that let’s us jump the cliff and land somewhat safely. Here’s their takeaway:
• “The most likely scenario is an eleventh-hour deal that avoids the cliff but still reflects roughly 1.5%-1.7% in fiscal drag from a combination of spending cuts and tax provisions.”
• “…a compromise, especially one that is hammered-out after the election, looks less elusive if each element of the fiscal cliff is considered independently. In fact, Republicans and Democrats agree on the vast majority the fiscal cliff elements.”
• “The biggest area of disagreement, of course, is whether the Bush income tax cuts for those making more than $250,000 should be extended,. Democrats …have shown some room for compromise on capital gains and dividend taxes by sponsoring a plan that sets dividend and cap gains both at 20% for high wage earners.
• What the election will determine will be the commitment on all levels of government to enact balanced, structural deficit reform in 2013 and beyond after the short-term issues of the fiscal cliff are addressed.”
• “However, the notion that a grand bargain could be enacted in the six weeks between the election and the end of the year seems highly improbable. While a short-term fix could be accompanied by a promise for a grand bargain down-the-road, we have heard this before, with no result, so we are skeptical.” Read more at Pimco
A ‘THELMA AND LOUISE’ MOMENT MEANS THEY’LL TAKE US WITH THEM
The Miami Herald editorial board gave a virtual tongue-lashing to Congress and the administration over their inability to cut a deal on the fiscal cliff and deficit reform.
“Despite the warning, the CBO report failed to bring the two parties any closer toward the negotiating table, where they can reach a workable agreement to give Americans — particularly the private sector — some certainty over where the economy is headed.
If Democrats and Republicans refuse to budge, there is no way for Americans to make a sensible plan for the future. Hire more employees? Invest? Borrow to expand the business? Stand pat and do nothing? Sell the house? There’s no way to guess what’s coming.
Lawmakers have to decide. They can allow current policy to go into effect, which means tax increases for everyone and spending cuts that would reverse the recovery. Or they can cancel the upcoming cuts and tax increases, which would increase the deficit.
Neither of those makes sense. The only practical alternative is for the parties to sit down like adults and hammer out a pragmatic plan that spreads the pain evenly and offers future deficit reduction and economic growth. But there’s not much time left to make a deal. If Democrats and Republicans are determined to have a ‘Thelma and Louise’ moment, they will take the economy, and the American people, over the cliff with them.” Read more at the Miami Herald
CEO’S PESSIMISTIC AS THE END-OF-THE-YEAR DEADLINE NEARS
Doubtful that Congress will reach an agreement before sequestration cuts take effect next year, business leaders are putting off investments and holding off on hiring new workers in fear of the looming fiscal cliff. Read more at National Journal
PANETTA: MAKE A DEAL ALREADY
Desperate for Congress to reach some sort of agreement to avert the fiscal cliff, Defense Secretary Leon Panetta told reporters Thursday “I’ll take whatever the hell deal they can make right now.” If Congress fails to act, the Pentagon will be slapped with $52 billion in cuts. With the threat of major cuts looming, Panetta said it’s becoming difficult to plan for the future. “You want a strong national defense for this county? I need to have some stability,” he said. “That’s what I’m asking Congress to do: Give me some stability with regard to the Defense Department and the future.” Read more at Stars and Stripes
DEFENSE CUTS: UNREMARKABLY MODEST REDUCTIONS MASKED IN HYSTERIA
As defense budget leaders use words like “doomsday” to describe the automatic cuts to defense set to take place at the end of the year, Winslow Wheeler writes in Time, that the cuts are “unremarkably, modest reductions” and “Even under sequester, the US is two and a half times that of any opponents or rivals combined. Wheeler also raises the point that contrary to defense leaders rhetoric, more funding doesn’t necessarily mean a stronger military. Read more at Time
WITH TALK OF WAR, DEFENSE CUTS NOT LIKELY TO STICK
Bruce Krastings, former hedge fund manager, writes in Business Insider that war talk is going to be a big part of the budget discussion when Congress comes back to Washington in November. “Iran is going to be front and center. Israel has promised to hold off on an attack of Iranian nuke facilities until after America votes. After November 6, the headlines will be about war. With this as a backdrop, I don’t see the mandatory cuts for the military sticking.” Read more at Business Insider
PHYSICIANS FEAR MAJOR CUTS WILL SLOW LIFE-SAVING MEDICAL ADVANCES
If Congress fails to reach agreement on a budget deficit package, automatic cuts in funding to research facilities will greatly impair the healthcare field and slowdown research and medical advances. The Hill reports that the National Institute of Health (NIH) estimates funding for 2,300 biomedical grants– nearly a quarter of all new grants—would be lost and major laboratories would be closed. Read more at The Hill