Super Cliff: Sequester And National Debt Ceiling Loom Ahead
COMMENTARY | In August of 2009, President Obama had a wise thing to say about raising taxes during a recession:
“You don’t raise taxes in a recession, which is why we haven’t and why we’ve instead cut taxes. So I guess what I’d say to Scott is – his economics are right. You don’t raise taxes in a recession.”
Unfortunately, the Fiscal Cliff deal was entirely comprised of raising taxes and did not include any spending cutting. As previously reported by The Inquisitr, this deal will likely cause many small businesses to either raise prices or cut costs by laying off employees to pay for the extra 4.6 percent in taxes. Similarly, the extra medical taxes of Obamacare will be threatening thousands of jobs. So, instead of the nation falling off the Fiscal Cliff, we’re now experiencing the Fiscal Stumble.
One criticism lobbed against Plan B was that it did “nothing to address the budget sequester, the expiring payroll tax cut, upcoming automatic cuts to Medicare doctors, or lapsing unemployment insurance. According to the Congressional Budget Office, failing to deal with these issues will result in up to 2.7 million fewer jobs next year.” Unless I’m wrong, the last-minute Fiscal Cliff deal also failed in this regard, so might we expect those job losses coming down the pipe?
What looms ahead in the coming year can only be called the Super Cliff because the potential repercussions will only be worse than the failed Fiscal Cliff deal. With cutting spending measures being kicked down the road the national debt ceiling will only come faster. Previously, it had been projected that we faced a Federal government shut down in mid-February. But now it’s possible the Federal debt ceiling may be closer than expected since previous estimates tended to assume that Congress would raise both revenue and cut costs.
According to Market Watch, this situation is setting up a fight between Republicans and Democrats:
“Republicans are on the record as ready to put up a stiff fight on spending and debt-ceiling issues. Democrats are on the record saying that they are still going to try to further raise taxes by closing loopholes.”
As previously reported by The Inquisitr, the Federal government has a spending problem, not a revenue or tax income problem:
“The budget deficit, or the amount of overspending above the income, is estimated by the White House to be $1.33 trillion over the $2.5 trillion income for 2012. President Obama is requesting that the Federal government spend $3.67 trillion in 2013. As you can see, borrowing from others represents about 1/3 of the Federal budget, with income being around 17 percent of GDP and spending about 24 percent of GDP. In order for revenue increases to cover expenses we’re talking about taxing everyone–not just the rich–a lot more.”
Raising taxes to cover the spending would require hundreds of billions in new taxes. Because of this, Republicans will likely threaten a Federal government shutdown if spending is not cut to reasonable levels. If they cannot agree, then the Federal government defaults on loans and the United States credit rating is hit. That’s one potential financial cliff. If both parties cannot get together and lower the Federal deficit to reasonable levels soon, then the next Super Cliff would become the shear amount of debt itself.
The current Federal deficit puts the national debt at over $20 trillion in 4 years. The Congressional Budget Office projects social security to cost one trillion in 2018. Our interest payments on the national debt at five percent will quickly be reaching unsustainable levels and would roughly equal the entire cost of social security. This final Super Cliff would leave a dysfunctional government unable to provide many of its basic functions that US citizens have come to rely upon.
Does the likelihood of this Super Cliff worry you more than the previous Fiscal Cliff?