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Cliff jumping: Local professor puts Fiscal Cliff into perspective
By Marthe Stinton, mstinton@starlocalnews.com
Now that the election has passed and government officials are putting their noses back to the grindstone, questions are still circulating about what the nation will face in the coming months regarding the fiscal cliff.
During a press conference on Nov. 9, President Barack Obama said if Congress fails to come to an agreement on an overall deficit reduction package by the end of the year, everyone’s taxes will go up Jan. 1, including the 98 percent of Americans who make less than $250,000 a year.
“We face a very clear deadline that requires us to make some big decisions on jobs, taxes and deficits,” he said during a press conference on Nov. 14. “I believe that both parties can work together. We should not hold the middle class hostage while we debate tax cuts for the wealthy.”
Obama said he’s open to compromise and new ideas, adding that he's pleased Republicans want to find new revenue. He also said the country cannot afford to extend the Bush-era tax cuts for the wealthy.
“I’m committed to solving our fiscal challenges,” Obama said during the Nov. 9 press conference. “But I refuse to accept any approach that isn’t balanced. I am not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me, making over $250,000, aren’t asked to pay a dime more in taxes. I'm not going to do that.”
Congress and the president could cut a temporary deal, which could increase uncertainty in the market and be a bad idea, said Matthew Eshbaugh-Soha, a political science professor at the University of North Texas.
“What matters is the president,” he said. “There was always going to be a deal. The difference is the presidency.”
Imagine a horizontal line, Eshbaugh-Soha said, with a left, right and midpoint.
“The president is to the left of center; Governor [Mitt] Romney, if president-elect, would be to the right of the midpoint,” he said. “The ‘deal’ would be in between the president and the House. If it were Romney, the deal would be closer to the House – i.e., more conservative with no tax cuts and more spending cuts. Since it is Obama, the deal will be more to the center, with some tax increases and more moderate spending cuts.”
What does that mean for the average North Texan?
“Local residents will be affected in many ways – just look at what will be cut and draw your own conclusions,” Eshbaugh-Soha said. “Take defense: we have defense contractors in the DFW area. If there is a fiscal cliff, then there will be fewer jobs for defense contractors. And people's taxes will go up, so they will spend less.”
If Congress and Obama fail to reach an agreement by the Dec. 31 deadline, a $7 trillion immediate tax rate hike and spending cuts will go into effect Jan. 1.
But Eshbaugh-Soha said North Texans wouldn’t see the affects immediately since the spending cuts and tax increases will roll out gradually. Businesses and the stock market will adjust their expectations, which could hit hiring and 401Ks, he said.
“The cliff will involve tax increases which means less money in people's pockets; it will mean cuts in discretionary spending, which means that people will have fewer services that they expect to have,” Eshbaugh-Soha said. “Is it the end of the world? No. The economy will undoubtedly slow down, unemployment will likely increase, and people, generally, will not like it. But the deficit will be reduced considerably.”
During the Nov. 14 press conference, Obama said he doesn't expect Republicans to adopt his budget.
"That's not realistic,” he said. “So we're going to have to compromise."
During a press conference on Nov. 9, President Barack Obama said if Congress fails to come to an agreement on an overall deficit reduction package by the end of the year, everyone’s taxes will go up Jan. 1, including the 98 percent of Americans who make less than $250,000 a year.
“We face a very clear deadline that requires us to make some big decisions on jobs, taxes and deficits,” he said during a press conference on Nov. 14. “I believe that both parties can work together. We should not hold the middle class hostage while we debate tax cuts for the wealthy.”
Obama said he’s open to compromise and new ideas, adding that he's pleased Republicans want to find new revenue. He also said the country cannot afford to extend the Bush-era tax cuts for the wealthy.
“I’m committed to solving our fiscal challenges,” Obama said during the Nov. 9 press conference. “But I refuse to accept any approach that isn’t balanced. I am not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me, making over $250,000, aren’t asked to pay a dime more in taxes. I'm not going to do that.”
Congress and the president could cut a temporary deal, which could increase uncertainty in the market and be a bad idea, said Matthew Eshbaugh-Soha, a political science professor at the University of North Texas.
“What matters is the president,” he said. “There was always going to be a deal. The difference is the presidency.”
Imagine a horizontal line, Eshbaugh-Soha said, with a left, right and midpoint.
“The president is to the left of center; Governor [Mitt] Romney, if president-elect, would be to the right of the midpoint,” he said. “The ‘deal’ would be in between the president and the House. If it were Romney, the deal would be closer to the House – i.e., more conservative with no tax cuts and more spending cuts. Since it is Obama, the deal will be more to the center, with some tax increases and more moderate spending cuts.”
What does that mean for the average North Texan?
“Local residents will be affected in many ways – just look at what will be cut and draw your own conclusions,” Eshbaugh-Soha said. “Take defense: we have defense contractors in the DFW area. If there is a fiscal cliff, then there will be fewer jobs for defense contractors. And people's taxes will go up, so they will spend less.”
If Congress and Obama fail to reach an agreement by the Dec. 31 deadline, a $7 trillion immediate tax rate hike and spending cuts will go into effect Jan. 1.
But Eshbaugh-Soha said North Texans wouldn’t see the affects immediately since the spending cuts and tax increases will roll out gradually. Businesses and the stock market will adjust their expectations, which could hit hiring and 401Ks, he said.
“The cliff will involve tax increases which means less money in people's pockets; it will mean cuts in discretionary spending, which means that people will have fewer services that they expect to have,” Eshbaugh-Soha said. “Is it the end of the world? No. The economy will undoubtedly slow down, unemployment will likely increase, and people, generally, will not like it. But the deficit will be reduced considerably.”
During the Nov. 14 press conference, Obama said he doesn't expect Republicans to adopt his budget.
"That's not realistic,” he said. “So we're going to have to compromise."
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