Will Political Gridlock End Before Reaching The Fiscal Cliff?

Washington D.C.

Political negotiations continue this week on Capital Hill as U.S. lawmakers seek to find  a compromise ahead of the looming fiscal cliff deadline on December 31st.

Global markets are awaiting for signs that pragmatism will prevail over political obstinacy while both Republicans and Democrats draw lines in the sand over critical portions of the federal budget such as the U.S. tax rates, eliminating the payroll tax cut, government spending, and cuts to entitlements (e.g. medicare).

The House is scheduled to adjourn on December 14 which leaves lawmakers with one week left to find common ground and settle on a workable solution towards achieving a compromise over the budget.

Yesterday the White House indicated that they were continuing low level private talks with Republicans about over the budget impasse and looming fiscal cliff.

“Lines of communication remain open,” White House spokesman Jay Carney told reporters on Thursday.

The White House and Republicans have both handed their differing budget proposals to one another in hopes of lowering the federal deficits by over $4 trillion in next 10 years.

The Republican proposal includes  an additional $1 trillion in spending cuts than President Obama’ budget plan which includes $800 billion more in tax increases and $200 billion in stimulus spending to help the U.S. economy.

President Obama said he won’t sign off on any proposal that does not increase tax rates for households earning $250,000 or more per year but Republicans have refused to go along with his proposal, claiming that its unfair to increase taxes on the wealthiest 2% of Americans. Under the President’s proposal, taxes rise to 39.6% from today’s 35%.

Raising the tax rate up to 39.6% would represent the exact same tax rate that previously occurred when President Clinton was serving in the White House.

Recently, the Quinnipiac University national survey revealed that 65% of registered voters support higher taxes on the wealthy.

The outcome from the recent U.S. presidential election should provide President Obama with further ammunition and added confidence when making the case to anti-tax Republicans on Capitol Hill that the majority of voting Americans support his economic platform which consists of an increase of taxes for the 2% while giving the middle class and extension of the Bush Tax Cuts. 

After Republican challenger Mitt Romney offended millions of Americans during his presidential campaign by making his “47% comment” of Americans being overly dependent on government, Republicans have little to gain and much to lose with the American public if they continue to side with the rich and show little willingness to raise taxes on the wealthiest.

The longer Republicans wait to negotiate on raising tax rates on the wealthiest, the more they stand to lose. If America goes over the “fiscal cliff” on January 1st, both the middle class and the 2% will be faced with paying higher taxes.

Millions of middle class Americans will blame Republicans for failing to work with the President’s budget proposal to extend the tax rates for the middle class.

With many Congressional seats facing re-election in only 2 years, the Republican majority in Congress could lose even more seats and be faced with a declining minority if they show little willingness to listen to Americans and instead side with their draconian anti-tax Tea Party doctrine over a utilitarian compromise.

Making deep entitlement cuts to Medicare and Social Security as Republicans have proposed as an alternative to raising the tax rates on the rich will also prove to be a recipe for disaster in terms of winning public support from the middle class and the greying baby boomer generation.

Striking a Balance

Republican Senators Lindsey Graham (R-South Carolina), Sen. Tom Coburn (R-Oklahoma) , and Sen. Saxby Chambliss (R-Georgia) have all expressed public support in recent days for giving more consideration to the notion of raising taxes on the wealthiest to help balance the large federal deficit.

Senator Chambliss has already taken back his anti-tax pledge that he made to Grover Nordquist, a staunch conservative and founder and president of Americans for Tax Reform, whose anti-tax pledge and anti-government position made him a darling in conservative circles as well as the base of the Republican Party in the Deep South.

“I care more about this country than I do about a 20-year-old pledge,” Chambliss told a Georgia television station.

Senator Coburn also spoke out publicly using conciliatory tones.

“Personally, I know we have to raise revenue; I don’t really care which way we do it,” Senator Tom Coburn said during an appearance on MSNBC. “Actually, I would rather see the rates go up than do it the other way, because it gives us greater chance to reform the tax code and broaden the base in the future” he said. 

Although Grover Nordquist and the Tea Party in the Republican Party are convinced that refusing to raise taxes is almost as important as God and Family, it is worth noting that they are deeply inspired by conservative President Ronald Reagan who as governor of California, signed into law the largest tax increase in the history of any state up till then, nearly tripled the federal budget deficit, grew the size of the U.S. government, and raised taxes 11 times over the course of his presidency while working out a compromise with the Democrats.

“Reagan was certainly a tax cutter legislatively, emotionally and ideologically. But for a variety of political reasons, it was hard for him to ignore the cost of his tax cuts,” said tax historian Joseph Thorndike in a 2010 CNN article.

Two bills passed in 1982 and 1984 together “constituted the biggest tax increase ever enacted during peacetime,” Thorndike told to CNN.

* The U.S. Jobs Report will be announced at 8:30 EST. I will post again later in the morning. I recently set up a Twitter account using SchweitzFinance with no spaces since there is no room to separate the two words.  I hope to tweet links and short comments about different stories that are related to finance, politics, technology, etc. I look forward to connecting with some of my readers over on Twitter as well as other sites like Facebook and Google Plus. I temporarily uploaded my photo on the my Twitter profile (SchweitzFinance) until I can acquire a new logo for SchweitzFinance.

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