The chief architects of the Simpson-Bowles budget reform plan, Alan Simpson and Erskine Bowles, joined by Goldman Sachs CEO Lloyd Blankfein, took aim at presidential candidates and congressional candidates alike about ignoring the most pressing economic issues facing the country. In a wide-ranging interview on CNBC Thursday afternoon Simpson quipped that politicians “worship the god of reelection” while being keenly aware of the devastating consequences of driving over the fiscal cliff.
Despite their agreement, none of the three seemed confident that a gridlocked Congress would reach a long-term deal during the lame duck session. “To the people who are most aware of the consequences, namely people like ourselves who are advisers to companies who have to live in the economy, we sure know what the consequence will be – and it will be awful,” Blankfein said.
Bowles gave Congress a 30-percent chance of a striking an agreement before the year’s end. “We have $7.7 trillion worth of economic events that are going to hit America in the gut in December, and in Washington they’re doing nothing about it,” he said.
THE GLASS-HALF-FULL-APPROACH In a rare moment of optimism, Blankfein emphasized the country’s potential in the interview with CNBC’s Steve Liesman. “We have a huge opportunity. There are a lot of things that have turned very favorable for us. Demographics have turned favorable to us--technology industries that we’re strong in and most importantly the energy situation in the United States. It’s not just Simpson-Bowles. Getting our budget in order is fine, but there are other things like energy, too, which we have to sort out. Which, if we do, we’ll find that the United States is in the best competitive position of anyone in the world and the best competitive position we’ve been in generations.”
Liesman said later that he admired Blankfein’s attempt to motivate the political process from the positive side as opposed to the more common negative approach. “We were talking about negative ramifications of not solving the fiscal cliff, but Lloyd was talking about the positive ramifications. I hadn’t even thought of it from that angle.” Bowles agreed, but said the problem is how to get there. “As long as we have huge debt overhang and don’t bring spending under control or increase our revenue, we won’t have enough resources to invest in” any of those things,” he said. - Watch the interview at CNBC
BUSINESS TAX BREAKS WILL DROP AWAY
The business community stands to lose $65 billion worth of tax breaks on top of anticipated spending cuts and tax hikes next year. The Washington Post’s Suzy Khimm reports that these vanishing tax breaks make up one-eighth of the fiscal cliff’s impact. According to the Tax Policy Center, below are the major tax breaks/credits set to expire (some expired last year, but their impact won’t be felt until companies file 2012 taxes next year):
• The research and experimentation tax credit (expired in 2011)
• Bonus depreciation (100 percent bonus expired in 2011; 50 percent bonus expires in 2012)
• Enhanced Section 179 expense deduction (for most new and used capital equipment); --15-year recovery period for qualified leasehold, restaurant and retail improvement property (expired in 2011). - Read more at the Washington Post
SUMMERS: STAY ON PAYROLL TAX HOLIDAY
Although most lawmakers and deficit hawks think the payroll tax holiday should end and not become a baked-in tax cut that can’t be reversed, Larry Summers, former Obama and Clinton administration official, said eliminating the tax cut is a bad idea. He spoke at the Center for American Progress on Thursday. Summers also warned of the dangers of going over the fiscal cliff and said if Congress fails to reach a deal by the end of the year, “the consequences could make what we have been through look small.” - Read more at Market Watch
DON’T FORGET ABOUT MARGINAL TAX RATES
The fact that taxes are going up if we’re cliffside next year is yesterday’s news, but little has been said about how marginal tax rates will be affected. The Washington Post’s Dylan Mathews reports that marginal tax rate hikes for the very rich and very poor will be substantial, while the increase will be less so for the middle class. Mathews cites the Tax Policy Center: “Households making between $40,000 and $50,000 a year, which is pretty close to the median, will see marginal rates on wage income go up from 32.4 percent to 33.1 percent, when you count both the income and payroll taxes.” Meanwhile, millionaires’ marginal rates of wages will shoot from 38 percent to 44.2 percent. And people making less than $20,000 a year will see their marginal rates on wages go from 16.4 percent to 20 percent. - Read more at the Washington Post