Tag Archive | "Middle Class"

Tags: , , , , , , , , , , , , , , , , , , ,

The Financial Cliff

The pressure is on in Washington. With President Obama returning to office and signs that some Republicans understand that the party’s ultra-conservative mindset does not resonate with the majority of Americans, it would seem the stage is set for meaningful solutions about the country’s bludgeoning debt. Congress will either follow the Obama lead or the country will fall off the fiscal cliff on December 31. 2012.

Given the erratic record of the Republican House, Americans are edgy about the possibility of a solution to a dilemma that could sink the economy. There is no historical support to think that Congress can coordinate a long-term solution to this pressing problem and place the country’s best interests ahead of their personal own politics.

The House of Representatives will once again attempt to hold Americans hostage, but this time they are negotiating with a President who will not be running for another term and who is committed to represent the middle class, or what is left of it. Analysts have suggested that a temporary debt reduction plan might be implemented but this would be the ultimate kick the can strategy. Americans expect meaningful action.

Three Wings of Fiscal Cliff

The fiscal cliff includes three main components. The temporary payroll tax reduction, the expiration of the Bush Tax cuts and $600 billion in spending cuts are in place to activate on the last day of the year. If negotiations about a remedy are not successful, every American taxpayer will have a heavier burden next year. This will dramatically cut back on consumer spending and severely hurt the Gross Domestic Product (GDP).

The payroll tax reduction has helped many Americans survive the recession and timid recovery. This reduction will most definitely expire.

The $600 billion cuts will cause loss of jobs and send shock waves through the economy. If a debt reduction plan is not in place by December 31, the defense department will suffer the biggest cutbacks.

Bigger Package Needed

As important as avoiding the fiscal cliff is, the country needs a substantial debt reduction plan. The most viable framework for a meaningful debt reduction initiative is the Simpson-Bowles, $4.6 trillion plan. While Simpson-Bowles is an aggressive approach to reduce the deficit, the country needs an even deeper plan.

Americans are exhausted with the dysfunction that has come to symbolize Washington. At a time when the US needs a balanced approach to reduce the debt, the Republican based Grover Norquist Pledge which opposes all legislation with a tax increase, could be the biggest fly in the ointment.

Two other flies in the ointment are Republican Vice Presidential candidate Paul Ryan, whose fiscal approach probably cost Mitt Romney the Presidency and Republican leader of the House, Eric Cantor. Cantor and Ryan have signed the pledge and cannot be relied upon to have any meaningful input in the negotiations. Frankly, the country would be better off if these two thugs were not re-elected.

The only hope to get a substantial deficit reduction plan in place lies with moderate Republicans, a dying breed in Washington. There are signs that the Senate is agreeable to a plan that crosses the aisle. The Congressional Budget Office reports that if a remedy for the fiscal cliff is not resolved, the economy will shrink by 0.5 percent during 2013. More importantly it is very possible that 5 million or more jobs will be lost in 2013, an outcome that apparently is acceptable to Cantor and Ryan. The country will find itself in a deeper recession than the previous recession.

David Cote, CEO of Honeywell explained the intense need for cooperation and action. “If the last debt ceiling discussion was playing with fire, this time they’re playing with nitroglycerin. If they go off the cliff, I think it would spark a recession that’s a lot bigger than economists think. Some think it would just be a small fire. I think it could turn into a conflagration.”

On Wednesday, President Obama met with a number of CEOs. Many of these CEOs are unsympathetic to the gridlock in Congress. Several major corporations have said they are hoarding cash and unwilling to invest in the US in the current political and economic climate. That possibility is another consequence of the fiscal cliff. Some of the country’s biggest corporations will invest in enterprises in other countries.

When the Bush Tax Cuts were introduced as a temporary tax reduction plan. They have been renewed every year since. The President ran on a platform of increasing the tax rate for workers who earn $250,000 or more. Ryan and Cantor are vehemently opposed to this approach despite the fact that many of the country’s wealthiest individuals have said they were amenable to the proposal.

Republicans favor changing the deductions, such as the interest paid on mortgages and other changes to add revenue. At a time when the country desperately needs positive news on the housing crisis, eliminating the deduction for interest would cripple the housing market further.

Just as Republicans did during the election, they continue to step on themselves. MSNBC reported that 60 percent of persons interviewed in exit polls favored tax increases for the nation’s wealthy. It is time for Congress to put their differences aside and negotiate in good faith for a long-term solution.

Forex Trading Articles by Forex Blog & Online Forex Trading

Posted in Forex Trading NewsComments Off on The Financial Cliff

Tags: , , , , , , , , , , , , , , , , , , ,

Obama Bows To Republicans

Just days after the National Commission on Fiscal Responsibility and Reform report recommended massive cuts that would permeate every aspect of American society, President Barrack Obama succumbed to Republican pressure and approved measures to increase the national deficit.  In a negotiated deal, the President’s strongly endorsed a tax plan that many in his own party find offensive and have vowed to fight. 

There are six key components in the deal negotiated by the President with the Republicans. 

  • The Bush Tax Cuts will be extended for two years. 
  • Unemployment benefits will be extended for 13 months. 
  • The dividend tax and capital gains tax will remain at 15 percent. 
  • Payroll taxes will be trimmed by 2 percent for one year. 
  • A cut in Social Security taxes will be approved for one-year. 
  • The estate tax will be at 35 percent with a $5 million tax exemption.

 Congressional Democrats are guarded in support of this new deal, which has many Republican earmarks.  Specifically, the Republicans held the unemployment extension hostage to gain tax cuts for the wealthy and the estate tax amendments.

Obama will claim that Democrats have won benefits for the middle class.  These benefits include less money from their paychecks, less total taxes and the unemployment benefits extension.

It is estimated that the lost revenue will amount to $450 billion in 2011 and $600 billion in 2012.  Some of the deficit damage can be contained if the economy grows. 

Obama qualified his support stating that he did not favor the continued tax cuts to the wealthy.  He does favor tax cuts for person earning less than $200,000 and couples earning less than $250,000.

The President was pressured into this deal because he waited too long and because the pending deadline for expiration of the Bush Tax Cuts would have expired on 12-31-10.  Obama said the extension of the tax cuts saved the average person about $3,000.00 per year.

Democratic Senate Leader Harry Reid appears opposed to the agreement and said he would meet with his caucus today and have an announcement on Thursday.  House Chair Nancy Pelosi has yet to weigh in on the President’s announcement.

It was clear that Obama hung his hat on the unemployment extension.  Had the benefits not been extended, 2 million Americans would be without benefits as of January 1, 2011 and 7 million more by the end of 2011.

The Democratic position directly opposes many of the compromise measures. 

  • Democrats favor tax cuts for individuals earning less than $200,000.00 and co8uple earning less than $250,000.
  • Democrats feel the limit on tax frees estates should be $3.5 million not $5 million. 

Republicans have been adamant in the belief that all Americans should be entitled to the tax cuts.  The theory is that the found money will be spent to help lift the economy. 

Originally, Republicans threatened that no unemployment benefits would be extended unless the Democrats agreed to cuts in government spending to pay for the extension.  The Republicans changed their tone when Obama put the broad tax cuts on the table. 

It has been suggested that the agreement would also pave the way for approval of Obama’s Start program for nuclear weapons reductions.    

Representative Peter Welch of Vermont echoed words from Senator Bernie Sanders saying the proposed deal was “grossly unfair” and “fiscally irresponsible.”  

The proposal is set to spark much public debate.  Politically, the proposal seems inconsistent with the fiscal responsibility called for by the voters in November elections.  For the President, it appears he will burn some Democratic bridges.

Forex Trading Articles by Forex Blog & Online Forex Trading

Posted in Forex Trading NewsComments Off on Obama Bows To Republicans