By Stephen Feller
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A growing number of Democrats say they are willing to let the country
go off the fiscal cliff if a deal cannot be reached by Jan. 1 that
raises taxes on the top two percent of earners while protecting costly
entitlement programs.
Their theory in this game of chicken with Republicans is that it will
be easier in January to lower taxes for 98 percent of the country
while finding the best possible parts of the federal budget to cut —
in line with long-held goals of the nation's liberal party. They also
think they'll be in a better position to save most, if not all, of
massive entitlements like Medicare as well as pet projects.
The fiscal cliff, originally created to force a
legislatively-appointed supercommittee to make significant cuts to the
federal budget, is roughly $500 billion mix of budget cuts and tax
increases.
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It includes the expiration of the Bush-era tax cuts and Obama-era
payroll tax cut, massive cuts to the military and jobless benefits,
and a decrease in Medicare reimbursement rates.
This will send tax on bond interest to 44.6 percent from 35 percent;
on capital gains to 25 percent from 15 percent and on dividends to
44.6 percent from 15 percent, Forbes magazine pointed out Monday.
The average family will pay an extra $2,000 to $3,000 in income taxes
if Congress fails to reach an agreement before the Bush tax cuts
expire on Jan. 1, according to the Congressional Budget Office.
The economy would shrink by 0.5 percent, the CBO has found.
Experts have consistently predicted that the overall economy would
take a massive hit if the country goes over the cliff, likely sending
it into recession. Still, since July, Democrats increasingly have made
the case that it wouldn't be so bad.
Led by Sen. Patty Murray, D-Wash., Democrats have pushed the idea that
the cliff is not as bad as the hype, with it being more of a “slope”
than a “cliff.”
Pentagon cuts, they say, would be phased in, and the tax hikes,
including the payroll hike, could also be slowed. If this happens,
according to The Center on Budget and Policy Priorities, there would
be a few weeks at the beginning of 2013 for a deal to quickly be
reached.
Sen. Charles Schumer backs Murray, also saying that Democrats can’t
cave in. He and other Democrats believe that Obama won a mandate for
increased taxes with the presidential election.
“[President Obama] campaigned on it clearly,” the veteran New York
Democrat said on “Meet the Press.” “He didn’t back off it.”
Also weighing in on Monday in a New York Times Op-Ed was billionaire
investor Warren Buffett, who has said he think the country will be
just fine going over the fiscal cliff.
While it's not ideal, the founder of Berkshire Hathaway thinks that
Obama must be willing to keep pushing for higher taxes on the wealthy,
even if it triggers the automatic onset of tax increases and spending
cuts on Jan.1.
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The U.S. economy, he said, can weather it for a month or two. "We're
not going to permanently cripple ourselves," Buffett told CNN last
week.
Buffett shrugged off the Congressional Budget Office's warnings that
failure to address the fiscal cliff by Dec. 31 could lead to a
recession.
"We have a very resilient economy," said Buffett, a long-time Democrat
and staunch Obama supporter. "The fact that [lawmakers] can't get
along for the month of January is not going to torpedo the economy."
But even as some Republicans waver on taxes, others have renewed the
call for no tax hikes.
“A tax increase never created a new job in this country,” Rep. Tom
Price, R-Ga., said on “Fox News Sunday.” “It doesn’t make any sense to
us to raise taxes on job creators in this time of economic challenge.”
And House Speaker John Boehner, R-Ohio, has said raising tax rates
will stymie job creation. But he also said he is willing to raise
revenue through tax reform and by eliminating “loopholes” in the tax
code.
House Majority Leader Eric Cantor, R-Va., has not said whether he
would vote for tax increases.
“A lot has been said about this pledge,” Cantor said on MSNBC Monday
morning, referring to the popular no-tax pledge pushed by anti-tax
activist Grover Norquist.
“I will tell you when I go to the constituents that re-elected me, it
is not about that pledge, it really is about trying to solve
problems," Cantor said. "And as we know, this election we just went
through is very much about, number one, what are we going to do to
reclaim a momentum in this economy? How do we get us back to that?
And, two, how do you solve a problem?”
Senator Jeff Sessions of Alabama, the senior Republican on the Senate
Budget Committee, echoed Cantor, saying in an interview that reforming
the outdated tax code could stir up new revenues without raising tax
rates.
"We need to create growth, which creates jobs, not damaging growth by
huge tax increases," Sessions told Fox News.
A CNN/ORC International poll released Monday shows a solid majority of
respondents -- two-thirds -- supports the Democratic stance that any
agreement should include a mix of spending cuts and tax increases. Of
that total, Republicans favor such an approach by 52 to 44 percent.
Even if effects of the cliff felt by Americans could be held off
temporarily, the markets may not fare so well.
“Markets are going to go into an absolute tailspin, and I don’t think
we want to risk that, especially with leadership right now trying to
find a deal,” said Gabriel Horwitz, director of the economic program
for Third Way, a centrist think tank. “I think the market reaction is
going to happen immediately.”
“Rather than stop the country from going over the fiscal cliff and
preventing the expiration of the 2001 and 2003 tax relief, they are
prepared to Thelma-and-Louise the American economy right over the
cliff,” said Sen. Orrin Hatch, R-Utah, the top Republican on the
Finance Committee. “That is an astonishing admission.”
William Galston, a senior fellow in governance studies at the
Brookings Institution, told CNN that Murray's form of brinksmanshipis
best avoided.
"To be sure, no one believes that non-agreement by December 31 would
be the end of the story. After a period of finger-pointing,
discussions would resume," Galston wrote last week in a New Republic
opinion piece. "But equally, no one knows how the failure to reach
agreement before the end of 2012 would affect the dynamics of the
negotiations."
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In addition, "we can be reasonably sure ... that national and global
markets would react adversely and that businesses, which are already
retreating from planned investments in new plant and equipment, would
become even more uncertain and risk-averse."
Murray said in July, and again after the election in November, that
without increasing taxes for some Americans, Democrats would balk at
any deal Republicans propose.
By waiting until January to cut taxes for the bottom 98 percent,
rather than increasing taxes for the top two percent, it may be easier
for Republicans to support the concept - based on timing and
semantics, Murray and other Democrats seem to think.
“We can’t accept an unfair deal that piles all of this on the middle
class and tells them they have to support it,” Murray said on ABC in
November. “We have to make sure that the wealthiest of Americans pay
their fair share. If Republicans, many of whom were elected after
campaigning against tax hikes, won’t agree, Democrats shouldn’t
blink... We’ll start over next year and whatever we do will be a tax
cut for whatever package we put together. That may be the way to get
past this.”
While many Republicans are now saying that they’d be willing to
violate Norquist’s pledge under the right circumstances, removing the
spectre of actually voting to raise taxes would make it easier for
them, she surmises.
Sen. Lindsey Graham said on ABC this Sunday that the pledge was not
his major concern, as long as Democrats offer cuts to entitlements and
other drains on the budget alongside the tax hikes.
"I will violate the pledge, long story short, for the good of the
country, only if Democrats will do entitlement reform," Graham said.
House Minority Leader Nancy Pelosi, D-Calif., told ABC that it’s not
her “role to go to the table with a threat... I think it’s my role to
go to the table with some ideas, to be receptive to what we can come
to agreement on.”
However not all Democrats agree that the threat of going over the
cliff should not exist.
Sen. Jay Rockefeller, D-W.Va., and Sen. Tom Harkin, D-Iowa, have
circulated a letter demanding that Obama start negotiations at a
1-to-1 ratio of spending cuts to revenue increases, putting them in
line with many in the party who want to see a harder line taken by
Democrats.
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