StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Time To Start Planning For After We Go Over The Cliff (AWGOC)

10 Dec 2012
Posted by Stan Collender

There's really not much new to say about the fiscal cliff except that, as of today, we're now three weeks away from it happening. There's especially not much new to say when the only news is that a meeting took place at the White House over the weekend between the president and speaker and the big statement was that the lines of communication remain open. No additional meetings have been scheduled.

A deal is still possible, of course, although the grand bargain/big deal/legacy agreement that never was very likely to begin with now appears to be all-but-impossible to achieve. Even if Obama and Boehner could agree on something like that, the chances of translating it into legislation and getting enough votes to pass it in the House and Senate before the January 1-2 fiscal cliff deadlines are very, very small. 

I'm not surprised by any this: I've been predicting since September that we were more likely to go over the cliff than prevent it and my odds of that happening have only gotten better (or is it worse?) since Election Day. For the record, I still think there's a better than 60 percent chance that we won't get any deal by January 1, and I'm very close to raising that number.

The chances of getting a big deal are only about 5 percent, and I'm being generous.

That makes it time to start thinking about what happens next, that is, what if we do go over the cliff.

Here's the first installment.

The negotiations won't stop; they'll just move into the next stage as the new Congress gets sworn in and becomes more Democratic; as the tax increases and spending cuts technically go into effect; and as the news focuses on how taxpayers, companies, government contractors, federal departments and agencies and federal employees start to respond to the changes even f they haven't been fully implemented.

This will make the period between the start of the new Congress on January 3 and the Inauguration, which usually is uneventful to the point of being somnambulant, a whirlwind of post-fiscal cliff-related activities with every member of Congress doing whatever they can to reassure their district or state they are doing everything they can to deal with the situation. Hearings, press conferences, floor statements, town hall meetings, symbolic votes, demonstrations, etc. should all be expected.


I think Obama will be successful at getting tax cuts extended for the <$250k crowd and the AMT patch either right before year end or shortly thereafter.

As for the defense sequester, I say let it happen. Consider the following:

- The defense sequester would, if it went into effect, mean an 11% reduction in the defense budget. Big deal, we're winding down a war as we speak.
- Even AFTER the sequester went into effect, we'd still be spending more on defense in 2013 than we did in 2006 at the height of the Iraq War.
- Even AFTER the sequester went into effect, we'd still account for 40% of the world's total military spending.

We need to get military spending under control. If this is the only way to do it, then so be it.

As for the expiration of the payroll tax cuts, extended unemployment, and discretionary spending cut, the timing is bad but we'll get through it. It's probably gotten to the point where we ought to let the extended unemployment expire anyway. And with government by short term continuing resolution, I wonder how much discretionary spending will actually get cut anyway. I'd prefer a more thoughtful solution, but it's not going to be the huge deal it's being made out to be.

Why should a President who

Why should a President who just won an election compromise with his zany opponents? If Obama is silly enough to go half way or indeed any way at all to please the GOP, let him go down in history as President Pushover. A wimp and a weakling.

Ooh I love quizes. Is the

Ooh I love quizes.

Is the answer because President Obama's zany opponents also have a mandate from the American people?


It would seem unlikely, since Democrats running for the House won more votes than Republicans running for the House. The difference in the outcome: gerrymandering.

Parachuting Over The Cliff

The President will go down in history as having overseen the largest tax increase on the American people in history if we go over the cliff without doing anything. I'm not sure he wants that title.

On the other hand, he must play hardball to get what he wants.

If the President and Congress can't come to an agreement, the following actually happens:

The Bush Tax Cuts disappear, raising taxes on everyone.

The Sequester kicks in, cutting government funding by one trillion over the next ten years. Unfortunately, as the fiscal year begins in October, and no cuts have been made yet, instead of $50 billion being cut over a year, it will seem more like $100 billion being cut in a half year.

The AMT kicks in for many more middle class families, potentially costing them thousands of dollars.

The Payroll Tax Cut ends.

Unemployment Insurance for the long-term unemployed AND THEIR CHILDREN.

The Debt Ceiling will still need to be raised.

Medicare will still be on track to go bankrupt in a decade.

This endgame will be interesting.

Can the people get anything included in the fiscal cliff legisla

Heard u on Bloomberg radio this afternoon. Appreciated ur insight about ear-marks limiting the power of the speaker. Can we get Term Limits included in the Grand Bargain? If such a wish could come true, what are the unintended consequences of passing Term Limit.

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