• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Morning Bell: What Will the Fiscal Cliff Deal Look Like?

    This week, President Obama and House Speaker John Boehner (R-OH) have been trading secret offers on the fiscal cliff. Last night, they met for nearly an hour, and emerged with zipped lips about what progress—if any—they made on averting tax hikes across the board and automatic, deep budget cuts that would devastate America’s defenses.

    While action is necessary to avoid the “cliff,” that is all they should do at this late date. Patrick Louis Knudsen, Heritage’s Grover M. Hermann Fellow in Federal Budgetary Affairs, warns against a “grand bargain” involving tax hikes in the short amount of time available:

    [H]istory shows that broad bipartisan compromises between the White House and Congress have typically just yielded higher taxes, while the promised spending restraint (except in national defense) and deficit reduction have failed to materialize.

    In fact, Knudsen says, “Such agreements tend to produce higher taxes and higher spending with little or no deficit reduction.”

    Knudsen’s educational retrospective on budget deals is a sobering reminder that even President Ronald Reagan agreed to tax hikes when he became embroiled in congressional budget “summits.” Though these tax hikes were in the name of reducing the deficit, the deficit actually increased because the deals leaned toward spending increases, not spending reductions.

    The “spend now, save later” approach is one of the ways that budget deals hide their true costs. And as details start to emerge—whenever they do—about the deal that President Obama and Speaker Boehner are putting together, it will be vital to examine the budgeting gimmicks they are using.

    To hide the true cost of budget deals, leaders in Washington get away with things that we could never do in our household budgets.

    For example, imagine you are planning your family budget for the new year. You decide, “I’m not going to take a $2,000 vacation. So that means I just saved $2,000! Now, I think I’ll spend my savings on new furniture.”

    What happened? You spent $2,000. Where did it come from? Your regular budget—not some magical pot of extra “savings” money that you somehow accessed.

    Yet this is exactly what President Obama is claiming—that there is a magical savings pot, and that he’s going to take money out of it to spend on other things. Some of his magical savings come from winding down the war in Iraq and Afghanistan. Instead of winding down those operations and therefore not spending that money any more, he claims that these “savings” can now be spent again on something else.

    Of course, it also bears mentioning that the Senate hasn’t passed an actual budget in three years. So while you’re counting your household pennies and figuring out how to pay the rent or mortgage, buy groceries, and pay off your Christmas spending, Congress is just charging up more spending with budget gimmicks. When they’re not claiming the phantom “savings” described above, they’re declaring a need for “emergency” spending.

    As Knudsen puts it, “Spending and tax policies have been ad hoc, piecemeal, and temporary, fostering constant, nagging uncertainty in the economy.”

    This practice has to be corrected. But now is not the time for a complete budget overhaul. Now is the time to extend current tax policies and prevent all Americans from suffering the largest tax hike in American history. Then, Congress and the President can duke it out over a grand budget.


    The Fiscal Cliff and the Perils of Grand Budget Deals by Patrick Louis Knudsen

    Fiscal Cliff: Five Budget Tactics to Reject by Patrick Louis Knudsen

    Quick Hits:

    • The federal government will be tasked with creating health insurance exchanges for two-thirds of the country after states declined to set up Obamacare exchanges.
    • Greece’s latest idea for dealing with its fiscal problems? Taxing people who make $55,000 a year at 42 percent.
    • Susan Rice, the U.S. Ambassador to the U.N., removed her name from consideration for Secretary of State after the outcry over her Benghazi comments.
    • The bidding has begun for Hostess’s assets. Wal-Mart and Kroger are among the bidders, Reuters reports.
    • Join us at noon ET today for a Google hangout on right to work in Michigan. Tweet your questions to @Heritage.
    Posted in Economics [slideshow_deploy]

    48 Responses to Morning Bell: What Will the Fiscal Cliff Deal Look Like?

    1. glynnda says:

      Two things, Amy, your discussion is a good one, but already common knowledge. What we need to do is first start putting forward serious minded conservatives for the 2014 runs that includes the House and Senate. I would love to see some ideas for these people coming out during the morning bell. Also what can citizens do right now that will act like a cattle prod under the behinds of these gutless Republicans
      and I don't mean another petition…..they aren't even paying attention to us anymore. Boehner is using Obama tactics now with these stupid secret meetings and all this nonsense. The prez will get what he wants and Boehner will get what he wants……namely the shutting down of actual conservatives….Boehner cares about dealing with spending little more than the president does.

    2. Lloyd Scallan says:

      Whatever the final deal, be assured that Boehner will cave, Obama will win, and the American people will get screwed. How many more time will the inept Republicans realize The Democrats, and Obama have no honor or honesty. They lie as a matter of course and the Republicans fall for the lies every time.

      • Mary.......WI says:

        Are they falling for the lies or just spineless and too afraid to speak up? As I posed to Glynnda….third party???????

      • Frank says:

        It's because the Big Government "Establishment" Republicans are part of the problem, not the solution. That's why they nominated RINO Romney. I knew from the beginning that the flip-flopping Romney (& author of RomneyCare) was the wrong person to run against Obama (& ObamaCare). Most GOP Primary voters wouldn't listen & the Romney supporters liked to call supporters of small government candidates like Ron Paul & Gary Johnson names. The result: fewer Republicans turned out to vote for Romney than turned out to vote for RINO McCain 4 years ago.

      • becky says:

        We MUST start electing smarter and less crooked politicians.

    3. toledofan says:

      It's clear the best strategy for Boehner would be or should have been to just walk away. Raising taxes, today, is a bizarre solution to the spending problem generated by the Democrats and Obama; it's like the notion that extending unemployment benefits is actually a stimulus to the economy. If we all ran our own budgets like they do in Washington, we'd all be bankrupt, but, at the end of the day, it's very obvious that the Republican leadership isn't going to stand on any priciples other than to capitulate and do what they have done best, give in. I mean how many ways can Boehner negotiate with himself to get a good outcome.

    4. call this what its is– it's not a cliff– it's a spiral staircase with one way treads– a spiral staircase is shaped like what…?

      • glynnda says:

        LOL….right on the money

      • December 14, 2012
        Dear Friend,
        Serious concern for the tax increase !
        Please do not increase tax. That is not a good way for us to do so.
        Please try the best to cut tax to lower as the best as we could to help and protect our economic. If tax is higher. No one else could want to do business with us because of the cost of labor will cause it goes high too. Therefore the market may could crack . The people will losing their job. And a lot of banking will get bankruptcy. After that how the people could support their life if the living cost each day increase. Final all, increase tax is not a best interesting for us to do so.
        Christine Nguyen

    5. glynnda says:

      I think Boehner and the Republican establishment have a goal, they want to get rid of conservatives and get Washington back to the way things used to be before people really started getting involved. Evidence is Boehner kicked all tea party/conservative congress people off important committees last week. I don't understand the strategy for GOP of going along with Democrat efforts to neutralize the GOP, but if that's they way they want it….okay. I left the GOP on 11/7.

      • RG Schmidt says:

        I agree with glynnda's assessment; the Republicans, mostly Vertebrates In Name Only, would like things to return to the "normal" of the past 50 years or so, when Congress and the president could do whatever they wished because the people weren't paying attention. Now, people are starting to do just that, and the politicians don't like it one bit. Although I've never voted for a third-party candidate for the presidency, I left the Republican Party 30 years ago, and registered as a Libertarian, trying to show true conservatives on the local level they had support. The idea was those with true conservative values would work their way up the ladder to finally reach a level where enough support could be generated to field an electable alternative to the business-as-usual Democrats and Republicans. Didn't work.

      • mary says:

        And that's what the Democrats wanted you to do, Glynnda, leave the GOP. They are winning at splitting conservatives apart, and we're helping them. I'm frustrated, too, but I'll stay engaged.

    6. pete says:

      The executive branch and senate are seriously lacking character and integrity. Traits not seriously considered when voting for candidates. It is a popularity contest but we are no longer in high school. My 19 year old son let me know that we need to not let the youth vote until they are out of college/trade school, have a job, and paying tax's. People that vote but don't put money into the pot do not have enough moral conscience to vote correctly. Not all the youth are self centered or inexperienced on how the world works.

      So Mr. President and Senate leadership, where is the budget, what are we doing to reduce the deficiet and what are we doing to increase the amount of jobs. What is the active plan to reduce the amount of people on government assistance and restore their self image of themselves. What are you doing to make americans proud to be americans.

      From where I stand, very little is being done beyond serving your own best interests.

      • glynnda says:

        Pete, I wholeheartedly agree with your son's comments. I would add to it however…….2-3 years of military service, time to allow for that and a college or trade school degree and then the voting age begins at the age of 25. There's a reason that auto insurance rates drop dramatically for kids once they hit that magic golden number of 25….they are more responsible, they are actively trying to build a life and they are beginning to mature as adults. They are not so much dragged along by the thinking of Pop Culture and their friends anymore, since they are now pretty much paying their own way. I think age along with the above mentioned responsible behavior would have a great effect on the voting population.

    7. Capt. John says:

      Up the costs. Up the ante. Up the taxes. Up yours! What were Americans thinking? I treasure information but I don't know if I can handle twelve days of this.I suppose I better gird up for it because Ocare is not going away anytime soon and Sibelius et al are still writing the rules. OK – 12 more lumps of coal for Christmas. Am I still allowed to publicly say Christmas?

    8. No one on capital hill should break for the holidays unless this is resolved,and the president should not to flying to hawaii in the middle of this at taxpayers expense..

    9. Mary.......WI says:

      I feel that if Obama wants to tax the rich more there MUST be a cut in entitlement spending. I like the idea of Republicans voting present at the budget vote where Obama gets what he wants….. that way the demise of this country will fall squarely on the shoulders of the democrats. Look whats happening to Obamacare……an absolute mess! They can't blame that one on the Republicans!

      • glynnda says:

        Mary, I like your idea too, however doesn't matter what outcome, Republicans will get blamed and you know what…..they'll let it happen without a fight….they are for the most part truly becoming weak and powerless in the face of a growing bully….namely the Lib establishment.

        • Mary.......WI says:

          I agree Glynnda. The Republican party called the other night asking for money. I told her not one dime until the Republicans learn to speak up and NOT let dems get away with "murder", literally in the case of Benghazi. Third Party??????? I hate watching the demise of this country! I do hear from some folks that eventually "the people" will take thing in their own hands. I never thought that would happen in this country or at least in my lifetime…..age 61. It is scary.

    10. Dave says:

      After all I read and watched I guess I am still not sure if there really is a fiscal cliff. What happen if we cut spending we get our fiscal house in order. This means maybe some other country does not own so much of and we don't have to raise taxes. I think this is just another Chicken Little story.

    11. Bill, Bronx, NY says:

      When they take a break, the deal will be done. Taxes that increase for the "rich" will make the tax revenue will go down, more will be unemployed and we'll be back to a deeper recession. History proves lowering taxes stimulates the economy, with only with Reagan but other presidents back to the early 1900s. What kind of education are we giving people that they can't even analyze short term history? If we went back to Clinton economics, it would be better.

    12. Frank says:

      Our USA is increasingly illegitimate because they have, in effect, killed the Constitution and they just find excuses to do whatever these Big Government loving politicians (both in the D & R Parties) want to do. It's to the point now where being respectful to our leaders in Washington DC only serves to give them more of a false sense of legitimacy.

      As for the "fiscal cliff", we probably went over it years ago & we just haven't hit bottom yet. We are already mathematically insolvent. Best thing for now might be to do nothing & let the automatic cuts & tax increases kick in. It would force a cut in Defense & perhaps we will start closing the 800+ bases in 120+ nations around the world we no longer need (the Cold War is over) & stop being the world's policeman at our expense. It would also force more cuts in Federal spending in other areas.

      I don't trust the GOP Establishment in Washington DC any more. They are part of the problem, not the solution.

    13. jlb says:

      Never mind the "fiscal cliff" , go after Obama. The House Republicans should abstain from voting leaving this mess to the Democrats to swallow. After the bad news hits, hammer them as they would you-not the golden rule because they have made war upon all conservatives. Perhaps we should have tea some time.

    14. debbie says:

      I feel that they've already cut $1T in federal spending & it's the top 2%'s turn to give a little. They've had decades of tax breaks & special grants to get America fiscally sound. They chose instead to offshore their profits & offshore jobs while repeatedly applying for gvt grants. It's an ongoing process, it's their turn. We do need reform on Wall St & reform in spending (yes even entitlements) but putting all the burden on working poor & cutting programs that keep them working, healthy ,warm & fed instead of raising the taxes minutely of the 2% of Americans that own 93% of wealth in America is ruining the American Dreams of social mobility & every child being able to grow up & go to college.

    15. @Oilvewood says:

      Would someone mind telling my the reason why we do not have economists who truly know how the economy works, working on these issues instead of the misfits (including Obama) that are holding us hostage at this moment. Am I angry? Yes. Annoyed? Yes.

      • becky says:

        Because since the mid 60's the communists have been taking over our education establishment. No real scientific or mathematical education occurs in this country anymore and hasn't for a very long time. Most of the people properly educated without the communist indoctrination are all retiring or are retired. Until we retake our education system by Conservatives, and spend the time to reeducate Americans, we have many generations coming into control of everything who have NO education in fundamentals whatsoever.

    16. As long as you have any democrats in power at all, you will never get the overall or fiscal debt down ever.

      • Juan Martinez says:

        Hmm. And the republicans are different? National debt doubled under Reagan, and grew by 80% under Bush 2. The last time our nation ran a budget surplus and actually paid down any of its debt, there was a democrat in the white house. There still are plenty of reasons to dislike the democrats, but they do not have a monopoly on profligate spending.

    17. Mark Richardson says:

      The deal will be bad.
      Obama and Boehner meeting in secret is the first red flag. And remember, all this has to get by Harry as well.
      Boehner took the lead with the white flag. Then he started to clean house and dispose of any conservatives which might oppose him.
      This is a pretty awful start.

    18. Ron W. Smith says:

      I'm not sure I'd leave out as important a matter as what being SuperPower on Call costs us, Amy. Tax cuts are "hot," but avoiding the fiscal cliff involves so much more than those. Lobbying to rein in unnecessary spending would be a good idea, headed by a close look at the $1.3 trillion now spent annually the result of all those foreign policy decisions that have led us from mere hegemony to near insolvency since 9/11. The leaner times we currently find ourselves in haven't the faintest resemblance to the flush times of the 1950's and our willing accumulation then of more and more military installations around the world and their cost.
      Time for some national discussion and debate for all to see, hear, maybe even participate in toward real long-term solutions to our extravagance internationally while domestic needs go a-begging, I'd say. What do you say?

    19. Fedup says:

      This nation will not survive this government – close the damn government!

    20. PAUL DIX says:

      end this budget gimmick NOW AND FOREVER. NO MORE BASELINE BUDGETING!!!! FREEZE SPENDING LEVELS AT CURRENT LEVELS UNTIL REVENUE CATCHES UP. Every household in these United States will understand what you are doing and agree. Everybody knows that the first thing you do when you find yourself in a hole is STOP DIGGING. KISS IT AND WE WILL FOLLOW. ie keep it simple, STUPID.

      • becky says:

        Good idea but make the spending level prior to 2008. These guys would LOVE the level to be permanent that includes the current 1.5 Trillion over-spending every year.

    21. victorbarney says:

      I'd like to start a pool about just how quickly the Bibical "cashless society" will now occur. Just saying, as they sing: "Dance Band on the titantic."

    22. drduckster says:

      term limits will break up the brother in law club, we now have in both houses. I suggest 2 terms for each, 8 years for Supreme court justices. Stop the monopoly!!!

      • becky says:

        That is one of the many things I propose – which you might see if the moderators ever let any of my comments through. Do the rest of you get every single thing held up? One night I checked for hours and never saw my comments appear.

      • Jeanne Stotler says:

        Along with term limits, CUT OUT, salaries fo life, elite Medial Ins. for life, and Franking. All congressmen/women need to REALLY READ letters from their constituents right now they DO NOTHING, they leave it up to aides, we DID NOT ELECT their aides. There re a lot of ways to trim te federal budget start in the WH, the czars, over 5mil a year, Michelle's 28 aides?? Other First Ladies had 2 , she has28, that is another 2mil, cut out all waste in Gov't , audit EVERY branch, close down those who are not needed, many jobs belong in states, others are duplicating other dept. NO NEW HIRES in Fed. until budget isbalanced, ALL employees within 18 mos of RET. given a by-out andtheir job filled fom with-in with inter-agency transfers. RATION Obamas use of AF1, this would safe 180,000 an hour as he uses thisdaily alog with Marine 1 MAKE DNC remburse for all theus for campianing.

    23. RennyG says:

      The "cliff" will be what the big "O" wants it to be!!! He has us!!!!!! I have to compliment one person who stood up to this guy and his regime years ago, it was Glen Beck!! He had it right from the start , the "Alinsky Theroy!" Unfortunately politics came into play and they took him off the air. The only that was willing to tell it the way it was, the truth and ultimately what it was going to be like. Now you see it. So sad, all the opportunities that were and are made available and no one had the b—s to stand up and fight this guy. Well, we let "one person" who we know little about to take over our country!!!!How sad!!! Lord forgive us for our stupidity and weakness!!

    24. Libertas says:

      Whereas, I agree that runaway spending and high taxes are a problem, I see a much more troubling development. When I read the U.S. Constitution, I find nowhere does a sitting president have the enumerated powers to summon to the White House a key representative of the US Congress, in order to engage that person and pressure him into acceding to presidential fiscal demands. Indeed, that certainly is not Constitutional. Indeed, it certainly is more like what We the People would expect from a King George III, the second.

    25. PaulE says:

      Well the good news, if you want to call it that, is that this little dance between Obama and Boehner will only last another couple of weeks. Then Boehner will cave, as we all expect he has already agreed to do in private talks with Obama and Obama will get his "pound of flesh" tax increase and maybe even the $50 billion dollar "stimulus" as well. The second item just being something to rub salt in the open wound. What we have going on now, in all these secret talks, is just some positioning by GOP leadership to justify that they "put up a good fight, but ultimately had to capitulate for the good of the country". The actual wording may differ slightly, but the bottom line message will remain the same.

      If Boehner was serious, he would have just had the House pass yet another extension of ALL the Bush tax cuts and sent it to the Senate. The House has already passed the Ryan budget, so the Senate has an outline for where to start trimming back on the rate of spending growth. This isn't that hard folks! Then the ball would have been squarely in Obama's and Reid's court to justify this silly "tax the rich" strategy, which isn't even going to be used to reduce the deficit anyway, and put an actual counter-proposal, in writing, on the table. Sadly, that's not even being planned by the GOP.

      What Boehner will get, to save face, is Obama will drop his insistence that Congress cede the power to increase the debt ceiling unilaterally in perpetuity. It's doubtful Obama really expected to get that provision anyway and he probably threw it on the table just to tick off the Republican voter base. Besides there are Constitutional questions surrounding Congress simply surrendering one of its powers.

      At the end of the day, Obama will get his additional tax revenue, that he will use for additional spending. If he gets it the way he wants it right now, that will spell the end of tax reform as he wants both tax hikes AND deductions reduced or eliminated. There would be NO incentive for pursuing tax reform, if Obama gets his way.

      No substantial cuts will be provided as we've seen how this game has played out twice already in the last 30 years. The Democrats will just offer vague smoke and mirrors about possible future spending reductions. Obama will continue to be in perpetual campaign mode, when he's not on Letterman or vacation for the next four years. In short, a replay of the last four years.

      The national debt will continue to grow year after year. The economy will continue to limp along as various federal agencies heap ever more burdensome and costly regulations on all areas of the private economy. Unemployment will remain stubbornly high, even with the government revising how the statistics are determined to mask the real numbers. There will of course be new calls for more taxes in the spirit of "equality", "fairness" and "patriotism". More and more companies will move operations overseas as our domestic economic environment takes on more and more the appearance of France and Spain, which are of course no hotbeds of competitive economic growth themselves.

      Until the American people choose to wake up and force a proactive change to occur, we pretty much know where this path will take us. It won't take that long to get there either. By the end of Obama's second term, people will be looking back and wondering how could things have gone so horribly wrong so fast. At least the ones who can think rationally. The rest will just be marching or rioting in the streets for continuation of their handouts. Of course by then, our options will be severely limited to what can be done to rectify things. We will be completely buried under a mountain of debt and it's doubtful our various creditors will be much in the mood for buying still more worthless government paper.

    26. Blair Franconia, NH says:

      Welcome to Greece and I don't mean the 1978 John Travolta-Olivia Netwon-John movie.

    27. Mark Simmons says:

      Secret meetings behind closed doors between two men, leaving hundreds of Congress members elected to do this job, out in the cold, as well as hundreds of millions of citizens who will be affected. Somehow I don't think this is what our Founding Fathers had in mind.

    28. becky says:

      However, nothing will be done with this current bunch of crooks in our government. I don't think anything will ever be done until:
      1.) We elect conservatives
      2.) We put term limits in place
      3.) We remove all politician pensions, health care, and reduce their pay
      4.) Put in place budget constraints backed up by eliminating politicians' pay COMPLETELY when a budget is not balanced.
      5.) Remove the base-line budgeting farce and use real budgets.
      6.) Require bills passed to be one page or less. NO legalese.
      7.) Require ALL laws past, current, and future to be followed by ALL Americans – including congressmen.
      8.) Remove all provisions and laws in place now that don't equally apply to citizens AS WELL AS politicians.
      9.) Require a law that prohibits any Executive Order that violates ANY EXISTING law – before 2009.
      10.) Require a law that prohibits any Executive Order MAKING any new laws or rules that do not go through our elected Representatives.
      11.) Remove ANY politician IMMEDIATELY from office who violates the Constitution or laws of the land.
      12.) Confiscate, upon their leaving office, ANY INCOME of a politician that has not been earned by their paycheck for their congressional job and put it toward the debt.

    29. JohnL2 says:

      Hopefully the GOP will stick to their guns and refuse ANY tax increases……period! Let the country go over the cliff rather than trying to cut a deal with Obama, Reid, and Pelosi! Once over the cliff, it is Obama's problem with a GOP house to prevent him from going further into debt. The CONGRESS ONLY has the power of the purse strings, NOT Obama! The USA has survived crisis situations (and BAD presidents) before and will again. The blame should fall exactly where it is due……squarely on Obama's head!!!

    30. Jim says:

      I expect Beohner to keep insisting that Obama lay out a specific plan. Obama never inserts himself in any of the chaotic events he creates. Normally it's shills who make the nonsensical offers to see if anything sticks to the wall. Boehner should stick to his guns. Demand specific spending cuts that would go into effect in January. One specific cut each day. Do not compromise with Obama. An Alinksyite doesn't know how to compromise so pass on this wish and let Obama stew. Going over the "cliff" might just finally get Obama to think about "we the people" instead of shooting baskets or playing golf. Obama's economy never seems to go beyond 2% which isn't enough to do anything without significant spending cuts. Obama has had over a year to address this mess and yet didn't do anything. Obama is President and the economy is his. Boehner should wait for Obama to lead on this "cliff".

    31. Jeanne Stotler says:

      Glen Beck is NOT off the air go to sirius Radio, XM, Patriot, same as Andrew Wilkow, Sean Hannity, and Mark Levin

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.