As dawn broke on Friday morning—December 21, 2012—it was clear the world hadn’t met its end, contrary to some folks’ interpretation of the Mayan calendar. But one thing did meet with a fiery and very public demise: House Speaker John Boehner’s fallback plan to avert falling off the fiscal cliff.
Speaker Boehner’s much-ballyhooed “Plan B” would’ve agreed to higher taxes on the “wealthy,” defined as those with income above $1 million instead of the widely discussed $200,000 (individuals) and $250,000 (married couples) levels. This higher threshold was designed to be a compromise to sweeten the deal for those Republicans who seem more stuck on their party’s “no new tax” stance. But by Thursday night, Mr. Boehner announced he was yanking the plan without subjecting it to a vote. Simply, he was unable to garner sufficient Republican support for it. Republican lawmakers suggested they weren’t comfortable voting for the plan absent greater concessions from President Obama on spending and entitlement reforms.
Headlines meeting the withdrawal of Plan B were characteristically apocalyptic. Some claimed the event was akin to September 2008’s vote striking down TARP—glossing over the fact there was a little matter called the Financial Crisis going on then—a much more important issue than the Fiscal Cliff. (In fact, the only real similarity between the two may be that both begin with “F” and “C.”)
Putting alliteration fun aside, the reality was Plan B was a non-starter from the get-go. The likelihood it would’ve passed the Democrat-controlled Senate was minute. And then it would’ve gone to the White House and, in our view, Speaker Boehner would’ve had to do some serious jockeying to get President Obama to sign it into law.
Now then, our guess is some may read the failure of even taking a vote on Plan B as a sign Speaker Boehner may not be able to broker any deal that pleases the more conservative wing of the GOP. However, we’d suggest it’s more likely to wind up being typical politicking. Oftentimes, early votes or caucuses designed to measure support on an issue are simply a negotiating ploy—one designed to evoke greater concessions from the opposition. After all, there are no American politicians arguing we should raise taxes on all taxpayers, yet that’s what would happen barring legislation. According to a letter dated December 19 penned by IRS commissioner Steven T. Miller, roughly 30 million taxpayers would be subject to the alternative minimum tax if it isn’t patched. And an additional 30 million to 70 million would see technological issues filing, delaying payment of their refund. That’s a whole lot of unhappy voters and a risk elected politicians don’t seem likely to us to take. And this is only one piece (albeit a very significant one) of the fiscal cliff.
At this juncture, many are speculating the House will adjourn for the holidays and not return until after Christmas—leaving lawmakers only five working days before yearend. Yet one must realize that should January 1 arrive with no deal inked, a Taxmageddon need not ensue. When adjusted, tax rates are frequently put in force retroactively. No reason that couldn’t happen here, assuming politicians don’t reach a deal before the ball drops in Times Square.
Meanwhile, Friday’s economic reports from the US showed little influence of the supposedly looming fiscal cliff. Consumer spending rose in November, as Americans apparently shunned both overstated accounts of the fiscal cliff and Mayan Calendar-based forecasts of the end of times. Additionally, wages and salaries also grew nicely during the month. And finally, durable goods orders rose nicely, with machinery and vehicle orders leading the way. These factors just don’t suggest fiscal cliff fears are driving a steep drop in economic activity.
All in all, the fiscal cliff is certainly more real and worthy of much more merit than apocalyptic forecasts made centuries ago by a group that didn’t see the pesky conquistadors coming (or account for the international date line). Common media accounts of the US’s ongoing budget debate are, however, about as overhyped as the Mayan Calendar Cliff we went off on Friday.