Tough talk, no answers as ‘fiscal cliff’ looms

AFP/Washington

“I think we’re going over the cliff,” grimly predicted Republican Senator Lindsey Graham of South Carolina. Appearing on Sunday on CBS’s Face the Nation show, he said he was ready to consider closing tax loopholes for the richest Americans, but only in conjunction with entitlement reform aimed at saving such programs as Medicare, Medicaid and Social Security from bankruptcy.

But Graham insisted that the president’s plan when it comes to entitlement reform “is just, quite frankly a joke.”

In April 2011, there were less than two hours to go to avert a government shutdown when the same protagonists, Democratic President Barack Obama and Republican House Speaker John Boehner, struck a tentative budget deal.

The hard-fought accord that eventually raised the debt ceiling later that summer came too late to prevent Standard & Poor’s from downgrading the credit rating of US government bonds for the first time in the country’s history.

Despite international criticism then for playing a dangerously irresponsible game of chicken, both sides are at it again refusing to compromise and counting down the clock as financial disaster looms.

The debt ceiling deal signed into law in August 2011 included a poison pill provision that would usher in across-the-board spending cuts unless Congress passed a $1.2bn deficit reduction bill by the end of 2012.

Combined with the expiry on December 31 of a raft of tax cuts, including reduced Bush-era rates for nearly all Americans and Obama’s 2% cut in payroll taxes, the risk of a new recession is very real.

The point of the “fiscal cliff” provision was to force a fiercely divided Congress and White House to stop kicking the can down the road and get serious about tackling the $16.3tn public debt and arcane tax laws.

Obama called in the tough-talking Timothy Geithner to be his pointman on the crisis, hoping the outgoing Treasury secretary had enough respect on Capitol Hill and economic expertise to get the job done.

But, if the Republican leadership is to be believed, things got off to a rocky start when Geithner got negotiations rolling on Thursday by laying out Obama’s initial offer.

It called for nearly $1.6tn in new tax revenue over the next decade and $600bn in spending cuts, including from programs Democrats cherish like Medicare, which covers health insurance for the elderly.

“I was flabbergasted. I looked him and said, ‘You can’t be serious,’” Boehner told Fox News Sunday. “I’ve just never seen anything like it. You know, we’ve got seven weeks between election day and the end of the year. And three of those weeks have been wasted with this nonsense.”

Republicans said the offer doubled the amount of revenue Obama had been asking for, included new stimulus spending to offset the spending cuts, and made no specific commitments to slash costly government welfare programs.

They also balked at a provision that would see a permanent end to congressional control over federal borrowing limits, the issue that set this crisis in motion.