Subscribe to Money Morning get daily headlines subscribe now! Money Morning Private Briefing today's private briefing Access Your Profit Alerts

Fiscal Cliff Not a Priority for This Do-Nothing Congress

With the United States poised to topple over a recession-inducing fiscal cliff in January 2013, you'd think Congress would be frantically working on a solution.

After all, that's what we elected them to do.

The fiscal cliff is political shorthand for the combination of spending cuts and tax increases scheduled to hit Jan. 1, 2013. It's the result of the expiration of the President Bush-era tax cuts combined with $1.2 trillion in automatic reductions in federal spending made last summer as part of the deal to raise the debt ceiling.

But rather than focus on figuring out how to avoid the fiscal cliff, Congress members are focused on figuring out how quickly they can get out of Washington for their next recess.

"Everyone wants to get out of town – fast," a top Senate aide told Reuters.

That would be fine if lawmakers were just finishing a grueling summer session, but they just returned from a five-week recess. The current session will last just two weeks, and then Congress departs for another recess, possibly as long as seven weeks.

And what lawmakers have placed on the agenda for their abbreviated session hardly compares to the flashing-red-lights, sirens-blaring crisis the United States faces with the fiscal cliff.

Instead Republicans and Democrats will spend much of their limited time voting on bills and holding hearings designed to score political points they can use in their re-election campaigns.

The Democrat-controlled Senate plans to vote on jobs bills they know the House Republicans will reject; the GOP-controlled House plans to repeal Obamacare for the umpteenth time, which obviously will get nowhere in the Senate.

"Democrats appear ready to ride out the rest of the year spinning tall tales that the economy is doing fine while doing virtually nothing about the problems we face as a nation," Senate Minority Leader Mitch McConnell, R-KY, told Politico.

Rep. Chris Van Hollen, D-MD, called the GOP moves an "example of Republicans wasting time that should be spent on finding solutions to the country's problems. We're up to zero votes on Obama's jobs bills and more than 30 votes to repeal Obamacare," he told Politico.

Meanwhile, America edges closer to the fiscal cliff with each passing day.

Why the Fiscal Cliff Matters

If Congress does nothing, every American will see a big bite out of their paycheck come January, which will lead to a sudden drop in consumer spending. About half of the mandated federal spending cuts – known in Washington as "sequestration" – will hit the defense industry, creating major job losses.

The uncertainty over what Congress will or won't do about the fiscal cliff has forced corporate leaders to delay expansion and prepare for the worst.

The Congressional Budget Office (CBO) warned last month that U.S. economic growth would slip back into recession by shrinking 2.9% in the first half of 2013 if lawmakers do nothing.

Every U.S. citizen and business would suffer. And delaying action until later this year – never mind what happens in 2013 – is bad for the economy now, as it extends the uncertainty handcuffing businesses.

"The sooner that uncertainty is eliminated, the better," CBO director Doug Elmendorf said. "The stakes are very high in the fiscal policy decisions we're going to have to make very shortly."

The defense industry will feel the worst of the fiscal cliff; it faces $500 billion in cuts in January. Such cuts would cost tens of thousands of citizens their jobs and deal another blow to unemployment, which has been over 8% since February 2009.

"As many as 108,000 DOD civilians could lose their jobs in the weeks immediately after sequestration goes into effect," Todd Harrison, senior fellow for defense budget studies for the Center for Strategic and Budgetary Assessments, wrote in an Aug. 24 report. "And the longer DOD waits to reduce its civilian workforce once sequestration goes into effect, the deeper it will have to cut civilians for the remainder of the fiscal year."

A Problem of Their Own Making

Given the urgency of the problem, it's appalling that Congress has not made addressing the fiscal cliff its No. 1 priority.

But most galling of all is that Congress itself has created the problem by postponing difficult decisions over and over again.

Back in December 2010, Congress voted to extend the Bush-era tax cuts for two years because it didn't want to deal with the consequences of raising taxes during a recession.

Last summer, the impasse over raising the federal debt ceiling led to a deal that created a debt "supercommittee" that would cut the deficit by $1.5 trillion over 10 years. To ensure action, Congress also agreed to the "sequestration" cuts should the committee fail, which it did.

Congress agreed in February to extend President Barack Obama's payroll tax cut (a 2% reduction in the Social Security taxes deducted from paychecks) one more year.

Congressional decision (or indecision) ensured all these actions would coincide on Jan. 1, 2013.


And now most observers expect Congress to wait until late December before holding any serious discussions about the fiscal cliff. And what do they think will happen?

Yet another extension, this time to March 2013.

No wonder the approval rating for Congress hit 10% in the Gallup poll for August, tying an all-time low. It hasn't been over 20% for more than a year.

"The metaphor for congressional ineptitude is its inability to even reform the postal service," Greg Valliere of the Potomac Research Group told Reuters. "Members in both parties talk tough about reducing deficits, but they are scared to close a local post office because they will get angry letters from constituents. If you can't reform the post office, how are you ever going to reform entitlements?"

Related Articles and News:

Join the conversation. Click here to jump to comments…

  1. Terry R. Fisher | September 12, 2012

    Vote the whole group of Congressmen & Congresswomen out and start over, Vote the entire 100 Senators out and start over with fresh blood. Next Congress and Senate then should enact Term Limits and if that does not happen vote them out once again the next term until someone get the message the voters are fed up with a do nothing group of Political folks. Sincerely Terry R Fisher

  2. Bette Israel | September 14, 2012

    folks..i agree whole heartily with the Fishers. What is more impossible to believe, is that the people in Congress get paid the rest of their lives and get a pension without having perfomed at all. When are we going t o get ird of these rules?

Leave a Reply

Your email address will not be published. Required fields are marked *

Some HTML is OK