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Rob Horowitz: ‘Fiscal Cliff’ Notes

Wednesday, December 26, 2012


Since it looks more likely, that an agreement will not be reached before we are scheduled to fall off the fiscal cliff on New Year’s Day, an informal glossary to some of the terms we all unfortunately will be hearing more about is provided below:

The Hastert Rule: Initiated by former Republican Speaker Dennis Hastert and so far adhered to by Speaker Boehner, it says that no bill will be put to a floor vote unless it has the support of the majority of the House Republican Caucus. The rule, the brainchild of the ‘take no prisoners’ former House Majority Leader Tom “the Hammer” DeLay, was a result of right wing anger at former Speaker Newt Gingrich for cutting deals with President Clinton in which compromise legislation would pass the House with a relatively even mix of Democratic and Republican votes. In order to reach an agreement to avoid the consequences of going off the fiscal cliff---a tax increase for most Americans and big cuts in defense spending and discretionary domestic spending--Speaker Boehner will be under increasing pressure to do away with the Hastert rule or to at least suspend it. It is likely that the broad compromise nearly agreed to by the President and Speaker Boehner that included raising taxes on people who earn $400,000 and above and some retiree entitlement reform could pass the House of Representatives, but it may not be able to garner a majority vote of House Republicans.

January 3: This is the day Speaker Boehner is scheduled to be re-elected. He is likely not to make risky moves that could anger House Republican members before this date.

Negotiating against Himself: This is the favorite charge of liberal critics of the President such as Paul Krugman. They argue that the President gives away too much to the Republicans in these negotiations without getting back anything meaningful in return. They make the mistake, however, of assuming President Obama shares all of their policy goals. This is simply not the case. For example, unlike his liberal critics, the President believes we need retiree entitlement reform. When he agrees to a chained CPI for Social Security, which will provide a slight reduction in Social Security Cost of Living Increases or further steps to control Medicare costs, he is doing what he thinks is in the best interests of the nation—not caving in to Republican demands to which he is opposed.. President Obama recognizes that the federal government spends 7 times as much money on seniors than on youth—an unacceptable ratio that will get much worse as baby boomers begin to retire in larger numbers He wants to move on retiree entitlement reform now as part of a balanced solution that includes increasing taxes on the wealthy because politically and economically it is the only path to freeing up some resources for making needed investments in education and infrastructure while at the same time putting our nation on a sound fiscal path.

Falling off the Cliff: This refers to the fact that without Congressional action on January 1 all the Bush tax cuts sunset and the automatic spending cuts that were agreed to by Congress and the President as part of the 2011 Debt Ceiling Limit agreement kick-in. These tough across the board cuts in defense and discretionary spending were never intended to be implemented; they were agreed to because it was thought that they were so draconian that they would encourage a broader over-all debt reduction deal.

In reality, falling off the cliff will feel to most of us more like stepping off a slight incline. It has already been announced that there will be no immediate reduction in take home pay due to increased tax withholding. And the spending cuts, with the significant exception of people whose unemployment is running out, will take a while to bite. It is the case, however, that an immediate negative reaction will be seen in the stock market, especially if no agreement seems in sight. All in all, most of the negative consequences of the fiscal cliff, including the much predicted recession, would be a result of failure to reach agreement in the next few months—not the immediate consequence of “going off the cliff” on January 1.

Rob Horowitz is a strategic and communications consultant who provides general consulting, public relations, direct mail services and polling for national and state issue organizations, various non-profits and elected officials and candidates. He is an Adjunct Professor of Political Science at the University of Rhode Island.


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