December 9th, 2012
03:27 PM ET
10 years ago

Is a fiscal cliff deal possible – and what happens if it’s not?

(CNN) - With a little over three weeks left before the country could tumble over the fiscal cliff, and with a deal between President Barack Obama and House Speaker John Boehner not yet in place, a CNN panel Sunday with Chief Political Correspondent Candy Crowley hashed out what needs to happen for a deal to be reached, and the possible economic effects of heading over the edge.

Moody's Analytics Chief Economist Mark Zandi said on “State of the Union” the initial impact of missing the January 1 deadline would likely not be "a big deal," as taxes may not immediately rise, but by February "things start to get uncomfortable." He noted the February deadline for raising the debt ceiling, saying it would be "cataclysmic" not to do so, and would cause a recession.

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Economist Stephen Moore of The Wall Street Journal said the hold up on reaching a fiscal cliff deal came down to differing views on creating economic growth. Moore said he believed an increase in tax rates would cause a recession, identifying spending cuts as a more helpful option for reducing the federal deficit.

Zandi disagreed, arguing a deal should strike a balanced approach, and include spending cuts, higher tax rates, and tax reform.

Joining Zandi and Moore on the panel were New York Times White House Correspondent Jackie Calmes and CNN Senior Congressional Correspondent Dana Bash.

Calmes identified some movement toward a deal, despite the outward appearance of a stalemate. She cited Rep. Tom Cole (R-Oklahoma), a high-ranking Republican who has publically supported extending Bush-era tax cuts for 98% of Americans while dealing with the top 2% of earners later next year.

“It's hard to think that's not going to be where they end up, so why not make it clean instead of ugly?" Calmes wondered.

Bash agreed, saying Republicans are privately conceding the "politically expedient" thing to do is accept higher tax rates for the top 2%, but at the same time push for tax reform. However, Bash said House Republicans fear the possibility of attracting primary challengers as a result of accepting tax increases.

Moore also predicted taxes on the wealthy would go up and give Obama a "short-term victory," but said spending cuts (the "sequestration" part of the fiscal cliff) would be the main issue and cause "more gridlock."

"I don't see Republicans just walking away and saying, 'Ok, we won't do those spending cuts,’” Moore said, adding he thought Democrats have refused to deal with how to cut entitlement spending.

"We may be here until December 31st,” Moore said.

Bash added on to Moore's claim, saying senior House Democrats are concerned with some of their members’ unwillingness to reform entitlements, including raising the eligibility age for Medicare.

Calmes said Democrats know entitlements have to be on the table – as they were in 2011, when Obama and Boehner’s “grand bargain” included looking at changing the cost of living formula for Social Security and slowing raising the retirement age for Medicare.

“There has got to be a lot of people, Republicans, who wish they had taken the deal,” Calmes said, saying those concessions will be harder for Republicans to secure now since the “left has mobilized, and liberal groups are really active.”

Zandi agreed somewhat, saying Democrats realize entitlements like Medicare will have to be dealt with, calling it an "area of common ground." However, Zandi said Democrats were unwilling to change entitlements structurally, like turning Medicaid into block grants, turning Medicare into a voucher program, and privatizing Social Security.

The panel also looked at the controversial right-to-work bill being considered in Michigan. Moore supported the measure, which would allow workers to choose not to join a labor union, saying it was a "poison pill" for unions and allows Michigan to be more competitive.

Zandi agreed it would lead to more jobs, but added that it would also hurt wage growth. Calmes and Bash pointed out how unions already had to give concessions for the auto bailout a few years ago.

The panel also discussed the resignation this week of Sen. Jim DeMint (R-South Carolina), who announced he was leaving the Senate to head the Heritage Foundation, a conservative think tank.

Bash suggested Senate Minority Leader Mitch McConnell (R-Kentucky) was “not unhappy,” with the departure, as DeMint's strong support for Tea Party candidates in 2010 and 2012 arguably kept Republicans from wining back the Senate, and kept McConnell from being majority leader.

Watch State of the Union with Candy Crowley Sundays at 9am ET. For the latest from State of the Union click here.

Filed under: Fiscal Cliff • TV-State of the Union
soundoff (12 Responses)
  1. 2012liberal

    I'm ok w cliff. Need revenue and serious defense cuts. We get both w cliff. Medicare needs some reforming and can b cleverly done with the intellegent ppl hv coming n on dems side. Republicans hv bigger entitled ppl 2 feel the pain than dems. Middle class and working poor has had their haircut over the past 12 yr. Nothing more 2 cut here! I cant wait 2 c warren and mathews start cleaning some HOUSE!

    December 9, 2012 04:56 pm at 4:56 pm |
  2. 2012liberal

    Look 2 minimum wage going $12-$14 hr federally if not by 2014 then n 2015 when dems hv senate and house back! Growth and no wage increases has broke our countries backs. But we r getting a good line up of surgeons coming in 2 fix the patient that the gop ran over w the bus!

    December 9, 2012 05:09 pm at 5:09 pm |
  3. joepa14221

    2012 liberal,
    Keep fooling yourself. Social Security has been spent by both the dems and repubs, so now it makes up 15% of the deficit. Medicare needs to be cut by 2/3 because you only pay 1/3 of what you spend. Saying you fixed medicare and then readjusting it like dems did under Clinton did not fix it. keep dinking the coolaid

    December 9, 2012 05:57 pm at 5:57 pm |
  4. Ancient Texan

    If taxes are raised on the small business owners, odds are really good that we will see another recession next year anyway.

    December 9, 2012 06:25 pm at 6:25 pm |
  5. Anonymous

    I too vote for the cliff. The Bush tax cuts were, are, and will always be the greatest disaster our government has done to the USA in history (along with Bush's phoney Iraq war). Clinton gave us four years of surpluses and economic growrth, bring him back.

    December 9, 2012 06:39 pm at 6:39 pm |
  6. Just a thought

    I'm not ok with the cliff. This should be a no brainer. Considering the Repubs should have an intimate understanding about no brains, why are we continuing the back and forth. Get it done boner

    December 9, 2012 07:08 pm at 7:08 pm |

    i want to know what my local representatives are doing to stop the poor and the elderly from recieving critical care ? i want to see them represent not from hearsay if they worked as hard on issues as they did to get elected we would not expect them to return there pay check they are not voicing anything publicly or did i lose my right to hearing too? did i lose my right to freedom of speech too? how much did the 10 or more years of an illegal war cost and continue to cost ? budget cut yourself my dear representative

    December 9, 2012 07:30 pm at 7:30 pm |
  8. J.V.Hodgson

    I think a deal can be done and it will include tax rate increases and because of the budget act will have to agree some spending cuts larger than currently on the table. That said we have to look at the budget deficit Obama proposed for 2012/2013 and that is not over $1tr I believe $600bn or $800bn. The Presidents tax proposals are for $1.6tr 0r $160bn per annun and pending cuts need to be around $800BN.
    Then we can sit down and talk about other longer term ideas but the first priority is to figure out how to fill what is supposed to 3m jobs out there unfulfilled because of a lack of skill sets. identify whats needed and fund training programs for people to go on to fill the jobs and fund it by state wherever possible first.
    First job is to fund Sandy relief, fo Both house and Senate. And also to get ridof the over xenophobic rejection of the disability plan from the UN.

    December 9, 2012 10:44 pm at 10:44 pm |
  9. Larry L

    Those who are "okay" with the fiscal cliff possibilities need a refresher in economics. We live in a different world than the 1950s conservatives consider a utopian paradise. We lack the manufacturing capabilities and the cheap raw materials required to rapidly recover from a depression. We are a part of a world economy and do not control all of the critical variables. One thing worse than "big government" is a bunch of good ole boys trying to run small economies from the red states without the power of the United States.

    December 9, 2012 10:50 pm at 10:50 pm |
  10. S.B. Stein E.B. NJ

    It needs to be done. There needs to be a raising of the debt ceiling, tax rates & review of the spending that is done. The first step is to raise the revenue that is needed. The DoD needs a serious review on how it spends. That could help without cutting the real job that the DoD does.

    December 9, 2012 11:08 pm at 11:08 pm |
  11. @2012liberal

    Do you really want another American recession?

    December 10, 2012 02:58 am at 2:58 am |
  12. Henry

    ok the wealthiest of the wealthy pay more then their fair share this is just to strip weatlh from our nation the effective tax rate for the "rich" is 34.6% i pay 18% so the rich pay double what i pay that isn't fair but you can't explain that to a liberal or a democrat they don't seem to get it. Pay your fair share is what they say but most don't pay anything at all because they sit on their butt or suck from the government teet. Another thing this whole media bias of closing loopholes for the wealthy there are no loopholes the "loopholes" are deductions that all taxpayers get to enjoy and barack obama uses these loopholes to the reason they were called loopholes was because the media was helping obama win and wanted to target Romney as some tax dodging white business man typical bias enjoy the country getting run into the ground when there is no wealth left they will come for your assets. Remember that tax increases on the rich now according to Nancy pelosi are considered "middle class tax cuts" even though come January 1st the middle class will pay more in taxes from the implementation of obama care and the lose of our Medicare payroll tax cut of 2% so most Americans will see taxes go up about $2,300ButUt don't take my word for it obama says the republicans are lieing so he must be right do some homework people your being played they really think thAmericanan people are this stupid that they will not notice the increase in taxes next year not to mention the inflation and the high cost of energy that obama promised was to come there are some dark times ahead and you were warned. You deserve what you get.

    December 10, 2012 04:30 am at 4:30 am |