Economy Faces Cardiac Arrest over Cliff Stalemate
Business + Economy

Economy Faces Cardiac Arrest over Cliff Stalemate

New Line Cinema/Reuters/The Fiscal Times

There’s mounting evidence that the deficit reduction talks between President  Obama and House Speaker John Boehner  have stalled, but the real pressure on them to forge an agreement is really just beginning.

With each passing day, the much feared year-end automatic tax hikes and spending cuts get closer to reality. Obama and Boehner have tried to keep the negotiations essentially a two-man chess game behind closed doors, but they can’t ignore the other players who are becoming increasingly vocal.

That includes powerful CEOs, groups like the AARP and the AFL-CIO, the well connected defense and aero space industry, and, most importantly, disgruntled congressmen who don’t want to waste Christmas in Washington twiddling their thumbs waiting for some elusive compromise to materialize.

Voters have also become hyper sensitive to the impending fiscal crisis and express exasperation with both parties.  A new NBC News-Wall Street Journal poll shows both the disgust and the divide, with 65 percent saying both parties should compromise, down from 75 percent in October, shortly before the election.

The president holds the upper hand on one of the major sticking points in the talks – tax increases for those making more than $250,000 a year, according to the poll. But the majority of Americans say both parties are “equally to blame” if there’s no compromise.

Those pressures have yet to change the rhetoric, but at a news conference this morning, Boehner didn’t rule out extending the current low tax rates to all but the wealthiest 2 percent of Americans. He did, however, once again berate Obama and the White House for not proposing more to curb entitlements and other long term spending.

“I’ve been pushing all year for us to address this problem,” Boehner said. “But here we are at the eleventh hour and the president still isn’t serious about dealing with this issue right here -- spending. If you want to talk about polling, most Americans would agree that spending is a much bigger problem than raising taxes. They want us to deal with this in a responsible way.”

Senate Majority Leader Harry Reid, D-Nev., retorted that it was Boehner and the Republicans who were dragging their feet in reaching an agreement by stubbornly opposing a tax rate hike on the wealthiest Americans.  “At some point reality should set in,” Reid told reporters. “The only question is how much financial stress middle class families and our entire economy will have to endure during this process.”

Since shortly after the Nov. 6 election, Boehner and Obama have been talking off and on about a grand bargain of spending cuts and tax increases that would achieve nearly $4 trillion of deficit reduction over the coming decade, while also raising the debt ceiling.

Unless the two sides can come up with the framework of an agreement that can pass muster with the House and Senate before the end of the year, more than $500 billion of tax increases and government spending cuts will begin to kick in Jan. 2 – the so called fiscal cliff that economists say will trigger another recession.

And this is causing heightened alarm among special interests, the business community,  government workers and  others likely to be hurt the most if the country goes off the cliff.

Marion C. Blakey, president and CEO the Aerospace Industries Association, renewed her warning  that the defense industry would take a serious blow if Congress and the White House fail to reach an agreement that would cancel $50 billion of defense cuts set to automatically take effect in early January.

 “Absorbing more cuts is going to inflict a lot of damage,” she said in one of two speeches she delivered this week on the looming fiscal crisis. “We’re talking about 2.14 million jobs at risk, with more than 956,000 coming from small businesses.”

This morning, a new AIA issued a report that said the automatic cuts would have a dire impact on the nation’s civil space program and the country’s ability to accurately forecast dangerous storms. A new analysis commissioned by the group concludes that over 20,000 NASA contractor jobs and 2,500 NOAA jobs related to weather satellites could be lost in 2013 if budget sequestration takes effect.

States that would be most severely hit by cuts in those programs include Alabama, California, Colorado, Florida, Louisiana, Maryland, Mississippi, Ohio, Texas, Utah and Virginia, according to the report prepared by George Mason University economist Stephen S. Fuller.

The D.C. -based Business Roundtable had 168 CEOs sign a letter this week urging Republicans to consider compromising on higher tax rates for the wealthy and Democrats to consider structural changes to entitlement programs. Their letter retreated on previous requests that lower rates be extended across-the-board for another year, a sign that the bullheadedness of lawmakers now poses a graver threat to the economy than higher taxes.

“The issue that we run into is there are 536 independent contractors down there between the House, Senate, and the president,” David Cote, chairman and CEO of Honeywell, told reporters this week. “If you have a system that’s geared toward brinksmanship, sometimes you do go over the brink.”

Major companies including Walmart have conducted internal polling that shows not only a heightened public awareness of the cliff, but a direct impact on consumer spending during the- make-or-break final weeks of holiday shopping.

“The week before the election, only one-fourth, twenty-five percent of our core customers even knew what ‘fiscal cliff’ meant,” Walmart CEO Mike Duke said in Tuesday night remarks at the Council on Foreign Relations. “One week after the election it was up to seventy-five percent. Now... fifteen percent of our customers are telling us the conversation on the fiscal cliff will affect their Christmas spending.”

House Majority Leader Eric Cantor, R-Va., told his colleagues that the 112th Congress "will not adjourn ... until a credible solution to the fiscal cliff has been found," a warning that discussions could drag well into a Christmas and preclude lawmakers from returning home to their districts