With the fiscal cliff looming ever nearer, talks between Republican House Speaker John Boehner and President Barak Obama are appearing to increase in tension. Reports indicate that the wedge issues that cannot be resolved in negotiation are tax hikes for the wealthiest 2 percent of American households and the size and manner of spending cuts that must be made to strike a deal.
But no matter how divided the sides and how tense the discourse grows, one fact still remains. If the year-end deadline to avert significant budget cuts and tax increases is not met, the nation could plunge into another recession—the third in the last eleven years. There are, however, several possibilities that may arise whether or not a deal has been struck by January 1. Here are some of the top predictions.
A Temporary Compromise May Be Reached
As No. 2 Democrat in the House, Maryland Representative Steny Hoyer predicts that Congress may agree to keep current spending and taxation rates in place for a few weeks if lawmakers reach a “deal in principle” but do not have enough time to enact a law. This will be impossible if Obama and Boehner have no deal in place, however.
We Might Actually Take the Plunge
Budget analyst Stan Collender of Qorvis Communications believes differently, but still doesn’t see the plunge as a permanently damaging.
A reporter from MSN Money quoted Collender on Friday stating, “It’s far more likely we’ll go over the cliff and then fix it retroactively in January.” The retroactive fix, however, would require addressing the same tax rates and tax cut problems Congress failed to resolve before the deadline.
We Might Actually Avert It, But It Would Take Compromise
There are two major wedge issues that must be addressed in order to avert the fiscal cliff. The largest objection Republicans have to President Obama’s plan is the a general lack of spending cuts to social safety net programs such as Medicare, Medicaid and Social Security. Democrats believe Republicans are making inadequate offers in the area of tax rate, as they will not agree for tax cuts to remain in place for lower and middle income families if they will be raised on the very rich. They also contend that since they won election—the general public is clearly on their side.
The conditions attached to the cliff will address both of these issues with no compromise on anyone’s part though it will affect the economy and markets greatly despite the cliff being an artificially created problem. Financial markets stand a great chance of being spooked, disrupting the relative calm we’ve observed in recent weeks.
It is always possible that both sides could just both concede their wedge issues for the sake of the economy, but lately in the age of winner-take all politics, it is unlikely that such a deal will transpire.
As of Friday analysts have claimed that it is that it is increasingly unlikely Washington will be able to reach a deal before their deadline.