In the midst of the battle over the fiscal cliff President Obama met today with top CEOs is an effort to gain headwind in solving this potential crisis. Meanwhile, Congressional Republicans have begun to bump heads and show signs of potential cracks in solidarity, though GOP Speaker of the House John Boehner and Majority Whip Eric Cantor claim otherwise. The dissent within Republican ranks began over the weekend as Senators John McCain and Lindsey Graham said Republicans would be willing to offer concessions on tax policy and would be willing to eliminate or cap certain deductions in an effort to increase revenue and reduce the countries budget deficit. Today, five-term GOP Representative Tom Cole signaled that he may be willing to accept raising taxes on the wealthiest 2% of American's in an effort to keep taxes at current rates. On Friday President Obama plans to outline his strategy to fix the fiscal cliff to the American people, and the White House has already begun it's Twitter campaign #my2k where people can express how raising their taxes $2,200 would effect them. $2,200 is the average rate middle-class families taxes would increase.
At the beginning of 2013 The Bush Tax cuts are set to expire and income, capital gains and dividend taxes are set to increase, on top of that in an effort to reduce the budget deficit painful spending cuts would also be made to all government departments. Obama's proposal is essentially to renew all Bush Tax cuts except for those making over $250,000 a year and make some changes to entitlement programs. Republicans have stated they would be willing to eliminate certain deductions in an effort to raise revenue while making major cuts to entitlement programs such as Medicare and Social Security.
Like most policy fights over necessary fixes, much of the battle over the fiscal cliff is simply political theater in an effort by both sides to get as close to a bill that they favor. It would be surprising if Democrats and Republicans could not agree upon a deal in the eleventh hour as they always do. Unfortunately, this game of political chicken is harming the economy in the near term. The vast majority of the American people are still shaken by the Great Recession and have little confidence in Wall Street as well as K Street. A real deal will likely look similar to Simpson-Bowles and taxes for the wealthiest 2% are likely to go up coupled with a reduction of the Department of Defense and an increase in the age of Social Security and Medicaid recipients. The important thing is that real deficit reduction is achieved in a manner that will not cause a shock to the economy and allow the economy to continue on its steady recovery.