As White House and congressional leaders dispute fiscal cliff talks and negotiations, the nation is constrained, waiting for possible solutions to the financial crisis.
Deemed the “fiscal cliff,” the enactment of the Budget Control Act was created by congress after the two houses were unable to come to an agreement on the issue of the debt ceiling in August 2011. The law passed through both chambers of congress, and its purpose was to force the disagreeing chambers to act on a budget deal before January 2013.
History and Political Science Professor Dr. Ronald Traylor says he blames congress for their lack of leadership and courage to take grave action.
“The congress has the power of the purse,” said Traylor. “The congress could have made these decisions. The congress could have compromised; they chose not to. Now that the election is over, they are making noise about compromise. We’ll see about that.”
If the House and Senate do not come to a resolution on stopping the automatic tax hikes, a direct result of the expiration of the Bush tax cuts and radical sequestration of the defense budget, including $110 billion in cuts, according to the Congressional Budget Office (CBO), the U.S. economy would be placed back into a recession with an unemployment rate as high as 9.1 percent by 2013, claims the CBO.
Also, as the Wall Street Journal reported, the federal income, dividend and capital-gains tax rates will increase as an effect of going off the fiscal cliff, according to the CBO. The estate tax rate will also increase while applying to smaller estates because of an unsuccessful budget deal.
Weeks ago, Speaker John Boehner, House Minority Leader Nancy Pelosi, Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell all agreed that a possible negotiation could be nearing, after meeting with President Obama. Boehner, soon after, expressed to reporters that the GOP was willing to compromise by putting new revenues on the table, which democrats have been pushing for, as long as spending cuts followed.
The CBO has concluded that if a budget deal is reached and the Bush tax cuts are extended through 2013, 1.8 million jobs would be created.
Democrats and the Obama administration propose allowing the Bush tax cuts to expire on the wealthiest earners and capping tax deductions, while middle class and lower income earners would see their tax rates untouched.
Republicans have strongly opposed raising taxes on anyone, claiming tax increases would crush small businesses and investors in what most Americans find to be a stalemate economy. Party congressional leaders have talked about negotiating to raise new revenues by capping deductions, but not by raising taxes.
“One party says ‘We’re going to cut spending, but we’re not going to touch taxes.’ The other party says ‘We might reduce spending, but not as much as you wish. Instead we’re going to raise some taxes.’ Neither is completely right,” said economics professor Sang H. Lee. “They’re going to have to negotiate and compromise a little bit.”
Lee said he agreed with Democrats that a progressive tax rate where higher earners pay more was necessary in order to generate revenue to balance massive Washington expenditures. However, he also agreed with Republicans saying “absolutely you have to cut spending.”
A report concluded by the Congressional Research Center found that $1.03 trillion had been spent in fiscal year 2011 on federal welfare programs. Spending as such has become the norm on Capitol Hill, as the national debt sits at $16 trillion.
On Thursday, White House Press Secretary, Jay Carney, told the White House press corps that the President would refuse to pass any fiscal deal that did not raise taxes on wealthy earners. This comes as no surprise, as President Obama ran his presidential campaign on this mantra.
When asked if the new tax revenues would be a prominent fix to the fiscal cliff, Traylor said he did not think the idea would solve anything.
“I don’t think it’ll fix it at all,” said Traylor. “You can tax the rich at 100 percent and it’s not going to solve the deficit problem.”
Tuesday, Senate Majority Leader Harry Reid said  the debt ceiling would have to be raised in addition to raising high income taxes and hinted that the President concurred. The current debt ceiling is at $16.394 trillion.
John Boehner, two days later, held a brief press conference after meeting with appointed White House negotiator, Treasury Secretary Tim Geithner, in which the Speaker stated all meetings with administration officials had been non-productive. Boehner slammed the President for being absent on Capitol Hill in order to hold rallies, which he’s designed to coalesce the public around the administration’s fiscal cliff agenda.
With no negotiating in sight, the damages of going off the fiscal cliff remain a possibility.
“Whatever the regulations that we have right now, if [those] kinds of regulations or special treatments are lifted so students have to pay more interest, then the cost of obtaining the loan goes up, then absolutely it’s going to hurt some college students,” said Lee.
Traylor agreed on the looming threat the fiscal cliff puts forward, saying, “What if one of those cuts was the funding of higher education? The ripple effect of a 3 percent cut of the money that Southeastern gets from the federal government would be devastating on this campus because we’ve already been cut to the bone at the state level.”
With about a month to go, fiscal cliff talks and debates do not seem to be winding down. More congressional and administration meetings are set to occur on Capitol Hill.
Remaining unknown of what will befall of the cliff, Traylor asserts that students will take a hit regardless of outcome, saying, “They are going to be impacted no matter which way this goes, it’s just what specific impact will it do.”