5 ways Obama can defuse the fiscal stalemate
The five potential steps outlined below to blunt the impact of the fiscal cliff are a mixed proposition for Obama.
Even if the “do nothing Congress” lives up to its reputation and doesn’t come up with a deal, President Obama could still soften the economic blow of the fiscal cliff.
That might seem surprising for all the dire warnings being issued by lawmakers about the pending devastation from the combined $600 billion in tax hikes and spending cuts that are scheduled to hit at the start of 2013.
“Even if you went over the cliff for one month and then corrected it, you would still have a loss of GDP,” House Minority Leader Nancy Pelosi, D-Calif., declared in an interview broadcast Sunday by ABC News’ “This Week.”
But budget experts say the White House has several tools for delaying the potential pain, should talks between Obama and congressional leaders about how to avoid the cliff spill into next year. Negotiations could stretch into February with minimal economic suffering, they say.
However, the five potential steps outlined below to blunt the impact of the fiscal cliff are a mixed proposition for Obama—they buy some additional time to reach a deal, but they also remove many of the economic pressures that would force a compromise.
Barry Anderson, deputy director of the National Governors Association, has been flying across the country to brief incoming state governments about the different options. “The question everyone asks is, ‘Isn’t this a risky game?’” Anderson told The Fiscal Times. “You bet it’s a risky game.”
Treasury Doesn’t Collect More Taxes - Should we cross the fiscal cliff, income tax rates that were initially lowered by George W. Bush would reset to levels not seen since 2001. A family with a household income of $72,000 would owe a top marginal rate of 28 percent instead of the current 15 percent.
Most Americans pay their taxes by having a pre-determined sum withheld from their paychecks. This is the loophole the administration could exploit to shield families from the tax hike. “Just because the tax rates change, that doesn’t mean the secretary of the Treasury has to change the withholding amounts,” Anderson said.
Treasury Secretary Tim Geithner could decline to publish new tables indicating how much income should be withheld. Companies would continue to withhold taxes at the current levels, temporarily sparing families from a rate hike that would total more than $200 billion over the entire course of 2013.
Obama won re-election by promising to continue the existing rates for Americans earning less than $250,000 a year. House Speaker John Boehner, R-Ohio, began discussions by pushing to extend the current rates across-the-board for everyone, saying a tax increase would sideswipe economic growth.
But avoiding any increase through the use of withholding tables cannot last indefinitely, since the government would eventually have to increase the amounts collected. If Obama deploys this strategy, it would suggest his confidence that he’s on the cusp of a deal with congressional leaders, Anderson said.
Spend Now, Cut Later - Congress approves agency budgets, but the White House often decides how to “apportion” money over the course of the year.
The White House Office of Management and Budget does not have to instantly demand that agencies meet the combined $109 billion worth of cuts to Defense and domestic programs next year. Obama could fund some agencies at their current levels, while planning for later cuts that—if a deal is reached—might never be needed.
An April GAO report on sequestration noted that the “execution and impact of any spending reductions will depend on legal interpretations and actions taken by OMB.” But it’s also a gray zone in the law. The Comptroller General ruled way back in 1957 that such an approach could not cause a “drastic curtailment” of expenditures at the end of the fiscal year.
The OMB also has a limited ability to parcel out funding, since the continuing resolution to finance the government runs through March 27.
“You would not see the same impact on all parts of the federal government,” said Patrick Lester, director of federal fiscal policy for the budget transparency organization OMB Watch. “We could get through most of the month of January without most of the federal agencies being put in a terrible jam.”
Agencies Have Multi-Year Funding – Many agencies receive multi-year funding that could be tapped if funding is squeezed, according to a recent analysis by OMB Watch. If those leftover balances are not obligated for any specific program, they can easily ensure a steady revenue stream since they’re not subject to the $54 billion in sequestration cuts that are scheduled next year for non-Defense programs.
Agencies Can Shuffle Their Budgets – Federal agencies do not need congressional approval to shift money within their appropriations. By “reprogramming” their appropriations, agencies have the “substantial ability to redirect cuts away from sensitive areas of spending to other areas that may be less sensitive in the first few weeks of the year,” the OMB Watch analysis noted.
Soldiers Follow Orders, and the Pentagon Hasn’t Gotten Them Yet – It’s not like 2013 starts and the Defense budget is instantly dragged in front of a firing squad. The government can delay the impact of sequestration just by taking some time to pinpoint possible cuts, said Todd Harrison, a senior fellow at the Center for Strategic and Budgetary Assessments.
First, the White House OMB sends the Pentagon a memo ordering the 10 percent reduction. That would happen around Jan. 2. Then the military’s accountants toy with their spreadsheets to decide where to trim. This exercise should take long enough that any actual cuts couldn’t be implemented until February or early March.
“It really won’t be until the second-half of the fiscal year [April] that we see the real impact of this, because DoD hasn’t done detailed planning yet, and they can’t do it any faster,” Harrison said. “Don’t expect the apocalypse that has been predicted. You will be disappointed.”
Josh Boak is the National Correspondent at The Fiscal Times. Subscribe to The Fiscal Times' FREE newsletter.
More from The Fiscal Times:
- Bill Gross: Fiscal Cliff Is Worse Than You Think
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THis came from a friend of mine at a ford dealership.
I happen to believe it is true because my sister had a lady come into her Dr. Office and needed a formula perscription on the 15th of the month. After talking to the County welfare person, the perscription was written. After the welfare lady left. my sis called and talk to the welfare case worker who handled this. she was told that the welfare lady got $700/month for food on a credit card. My sis works and doesn't spend $500/month for a family of 5....something is not right in this deal.
True story yesterday at the dealership.
"I'll try to make this as short and to the point as I can.
One of my salesmen here had a woman in his office yesterday
wanting to lease a brand new Focus.
As he was reviewing her credit application with her he noticed
she was on social security disability.
He said to her you don't look like you're disabled and unable
to work. She said well I'm really not. I could work if I wanted to, but
I make more now than I did when I was working and got hurt
She said the gov't sends her $1500.00 a month in 1 check. And
she gets $700.00 a month on an EBT card (food stamps), and $800.00 a
month for rent.
Oh yeah, and 250 minutes free on her phone.
That is just south of $3500.00 a month.
When she was working, she was taking home about $330.00 per
Do the math and then ask yourself why the hell should she go
back to work.
If you multiply that by millions of people, you start to
scope of the problem we face as a country.
Once the socialists have 51% of the population in that same
scenario, we are finished.
The question is when do we cross that threshold if we haven't
already, and there are not enough people working to pay enough taxes to
support the non-working people? Riots?? Be prepared to protect your
She didn't lease the Focus here because the dealer down the
road beat our deal by $10.00/month.
Glad to know she is so frugal with her hard earned money."
We just herd Boehner wants to include the Obamacare for modifications in the discussion of the Fiscal Cliff. Now we know for sure he thinks he is the President of the USA since 2008, and President Obama is just a name in the political front. He insists in no tax increase for the rich, and emphatically suggests cuts for the entitlements programs. He obviously inherited the near bye spirit of Ryan the liar, in the body of Boehner. If the president is not stern, tough, and demanding, and ready to clip Boehner wings one way or another, we will return to the old times that he obstructs the President, and all the Democrats in the House of Representatives that want to help America! Boehner is a plastic hero, telling them in the House Tea Party, and Republicans members led by Ryan; austerity is the only way out of this mess for our country. Boehner keeps falsely saying, “I will not hear of the tax cut for the rich any longer because they are the only ones to produce economic employment gains”. Mr. President, we are with you all the way. They have given us hell for four years, now we are fully behind you, give them hell for good, and for ever, the way we Americas wants it now! Let the 47% of our punished citizens take no more, let your people ride the Fiscal Cliff down together with you, and stop making the rich richer with the sweat of the middle class! It may be hard, and unpleasant, but they need to know, we, the whole country, we will not take it any longer you worthless morons, while the country goes broke because of you all!
We still have too many putting their racist views before the welfare of our general population. We don't need another civil war, but this seems to be the path chosen by the arrogant, politicos on the right. They believe their guns and bullish behavior is the answer for all their dilusional beliefs. We might be better off if they secede from the union, or better yet just leave for Mexico where they can live by the gun they so worship.
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Breaking up big banks is an untested solution to the too big to fail problem that attempts to isolate and dismantle large, troubled institutions while protecting the rest of the economy.
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