THE FISCAL CLIFF

There has been quite a bit written lately about what would happen if the U.S. went “Off the Fiscal Cliff”. Much Doom and Gloom has been predicted. In a Political Season, however, keep in mind that the rhetoric will certainly be tainted by the Political Perspective of the writer. In other words, what is the writer’s true goal?

You might recall that a Special Joint Committee, configured equally of Democrats and Republicans, and from both the Senate and the House of Representatives, was formed last year. Their task was to establish a Plan to balance the budget or, if it did not, the Federal Budget would enact across-the-board cuts–and the so-called Bush Tax Cuts would expire.

President Barack Obama literally bent-over backwards to negotiate with the Republicans. He even asked for just $1.00 of tax increases in return for $10.00 of spending cuts. The “Right” said “NO!” Just about every Republican in Congress has signed the Americans for Tax Reform Pledge, as dictated by Grover Norquist. Personally, I believe that this should be illegal: Tampering with Congress.

Two of the primary regrets that Republicans now seem to have are: if the Country has to Downsize–or go “Off the Cliff”–would be blamed on Republicans in the November Election, and there would be significant cuts to the Department of Defense Budget. (Companies that produce Military and Aerospace Products are significant contributors to Capitol Hill Election Coffers.)

Well, might there be a potential solution to this impasse–assuming the two sides don’t reach agreement? Let’s day that the U.S. does Go Off the Cliff, which would take effect on January 1, 2013. Federal Department and Agency Budgets would be cut proportionately. Also, the Tax Rates would increase. That would help the Government move toward balancing the Federal Budget; but, it would throw the Economy into Contraction–raising Unemployment, increasing the demand for Safety Net Services and increasing the Federal Deficit.

Now, let’s look back to the Grover Norquist Tax Pledge. At the higher Tax Rates, Republicans would then be free to LOWER taxes, if only for the Middle Class, back to where they currently are, and leave those with Family Incomes of $250,000 or more to pay at the higher rates. Remember that the Economy florished, even when Tax Rates were raised by Bill Clinton. That would enable increasing funding, again across-the-board, to Federal Departments and Agencies. This could all be done retroactively to January 1.

That would leave the Republicans between the proverbial Rock and the Hard Place. Do they go along with reducing Taxes, but only for the Middle Class, thus enabling the re-funding of Defense? If they continue to stomp their feet, that could hurt them politically for years to come.

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