Forget politics. Bush tax cuts still loom

@CNNMoney June 6, 2012: 6:24 PM ET
Forget politics. Bush tax cuts still loom.

Handshakes are on hold.

NEW YORK (CNNMoney) -- Washington awoke with hair on fire Wednesday after media reports -- many of which later required corrections -- suggested that the Democratic Party was suddenly split over extending the Bush tax cuts.

Bill Clinton's interview Tuesday on CNBC came first. The former president suggested that a temporary extension of the tax cuts would be an acceptable -- and indeed the most likely -- outcome of talks over the expiring tax cuts. (He soon walked his statement back.)

Former Obama economic adviser Larry Summers was next, as the press turned a muddled automotive metaphor on Wednesday morning into a call for extending the tax cuts. The fact is Summers never called for such a thing during his interview on MSNBC.

Flash-fire controversy and political point-scoring aside, a key fact remains: The principal negotiators on the Bush tax cuts haven't changed their positions.

President Obama still wants to let the tax breaks expire as scheduled for those making more than $250,000 a year. And congressional Republicans remain opposed to raising taxes.

House Speaker John Boehner hasn't changed his mind, and neither has Obama.

And here's the thing: Lawmakers would do well to dispense with the rhetoric and get on with the policy compromises that nearly all recognize are necessary.

The so-called fiscal cliff -- a series of measures set to begin in January that would take more than $500 billion out of the economy in 2013 alone -- is bearing down.

The "cliff" includes the expiration of the Bush tax cuts, middle class protection from the Alternative Minimum Tax, and more than 50 "temporary" tax breaks for individuals and businesses that are set to run out.

It also includes nearly $1 trillion in blunt spending cuts across many areas of the federal budget. These would take a significant bite out of defense and non-defense spending.

A number of stimulus measures -- such as the payroll tax cut and extended unemployment benefits -- will also be ending.

Economists and the Congressional Budget Office predict the United States could fall into a recession if the tax hikes and spending cuts take effect all at once.

The general consensus in Washington is that lawmakers will strike some kind of deal before the end of the year -- but they will likely wait until the last minute.

The timing of the election plays a big role in this calculus. A sweeping victory for either party in November could propel them to a position of power when negotiations start in earnest.

But it's not clear that the economy can wait that long.

Friday's disappointing jobs report provided fresh evidence that the domestic labor market is floundering. Unemployment in the eurozone just hit a record 11%. And economic growth in China is rapidly slowing.

Markets are reacting in a way that clearly registers the fears of investors. Treasury yields are near an all-time low. Stock markets around the world are selling off.

One way to help the economy would be some sort of early compromise on tax and policy issues. But don't count on it.

David Kendall, a senior fellow who studies fiscal policy at the centrist Democratic think tank Third Way, said there is little chance for a compromise before the election.

"We are now seeing the pre-negotiations," Kendall said. "It's all part of the process. Whoever gets the upper hand in the pre-negotiations will have an advantage later on." To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.80%3.88%
15 yr fixed3.20%3.23%
5/1 ARM3.84%3.88%
30 yr refi3.82%3.93%
15 yr refi3.20%3.23%
Rate data provided
View rates in your area
Find personalized rates:
Economic Calendar
Latest ReportNext Update
Home pricesAug 28
Consumer confidenceAug 28
GDPAug 29
Manufacturing (ISM)Sept 4
JobsSept 7
Inflation (CPI)Sept 14
Retail sales Sept 14
  • -->

    Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.