Not that anyone in America has any nails left after that nail-biter of an election, but we are nervous all over again worrying whether we will plunge over the fiscal cliff. Man, this is exhausting.
Wall Street quickly warned President Barack Obama he will not get a fiscal honeymoon. Republican leaders on Capitol Hill (Mitt Romney is so yesterday) sent conflicting signals on whether they’re ready to get down to work. Obama says he’s wiser and willing to negotiate. Our trembling fingers are crossed.
Folks, this is really serious stuff. This looming train wreck (every cliche has and will be overused) confronts us because Congress kicked the can down the road late last year and the can has stopped rolling.
An across-the-board package of automatic spending cuts — including military cuts that Defense chief Leon Panetta warns would be devastating — goes into effect in January, mandated by Congress last year.
At the same time, the Bush tax cuts expire and tax rates revert to what they were before 2001, with the alternative minimum tax hitting more families.
At the same time, the 2 percent payroll tax cut Obama implemented expires and goes back to 6.2 percent.
At the same time, unemployment benefits that had been extended end.
At the same time, new taxes from Obama’s health care overhaul plan take effect.
All this would cost the average family about $3,600 a year.
And soon after that Congress will have to vote to extend the debt ceiling again to cover money we have already borrowed. Tea Partiers who want the deficit slashed immediately held Congress hostage over that issue a year ago, and the U.S. credit rating by Standard & Poor’s was dropped from AAA to AA+.
Altogether, the combination of spending cuts and tax increases would be a $670 billion blow to the economy, which would almost certainly end the fragile economic recovery and put us back into severe recession.
And the same players are still in the same chairs.
Just thinking about this gave investors the jitters after the election and the stock market tumbled in its most dramatic drop of the year.
So, how much trouble are we in?
For the first time, there are glimmers of optimism on Capitol Hill and at the White House. House Speaker John Boehner, R-Ohio, made some soothing noises about compromise although his counterpart in the Senate, Mitch McConnell, R-Ky., is being as grumpy as ever.
Obama says he’s ready to put partisanship aside and work to prevent a fiscal calamity, as long as tax cuts are continued only for those with taxable income of less than $250,000 a year. Last year Republicans rejected that stand on grounds this would discourage rich people.
Here’s what might happen:
We’ll only fall halfway down the cliff. Defense will be spared a 10 percent cut. Ultimately, some tax loopholes will be closed to give the government more revenue without actually raising rates. Some changes will be made in entitlements to stave off the day when there is not enough money for everyone covered by Medicare and Medicaid.
The operative word is compromise, which for too long has been a dirty word in the nation’s capital. If Boehner can get his party to accept higher taxes on the wealthy and Obama can get his party to accept changes in entitlement programs, there is a chance of getting a “grand bargain.” Boehner and Obama thought they had almost reached it last year.
This will not be done overnight. Boehner said negotiations will be a hard slog and take weeks. This Congress may not be able to do it.
The world is watching to see if Washington can, at last, function, if our politicians will act like adults. If not, the financial pain to America’s already ravaged middle class if we go into another recession will be horrific.
Reality bites. And our stubby fingers can’t take much more.
Scripps Howard columnist Ann McFeatters covers the White House and national politics.