Republicans Reject Initial Proposal

White House - Washington D.C.The Democrats and Republicans have just over a month to come to some sort of compromise on an assortment of different issues, from the scheduled expiration of tax provisions to the implementation of automatic spending cuts to the need to raise the nation's debt ceiling.

If there is no compromise, the United States will fall off the "fiscal cliff". This "fiscal cliff" could tip the nation into another recession if it is not avoided.

There are a number of things that are scheduled to take place at the end of the year. For starters, a number of tax provisions, including the Bush tax cuts, are scheduled to expire. These other provisions include those that limit the reach of the AMT and cut payroll taxes.

On top of that, automatic spending cuts, as per the Budget Control Act of 2011, are planned for the 2013 fiscal year.

While these tax increases and spending cuts would dramatically cut the size of the 2013 deficit, they would also likely push the nation into a recession. The CBO (Congressional Budget Office) has repeatedly warned of the dangers of the nation falling off the "fiscal cliff".

Finally, the Democrats and Republicans must also agree to raise the nation's debt ceiling.


The White House has submitted the first opening budget bid in this process, and the Republicans don't like it.

In a meeting with House Speaker John Boehner earlier today, Treasury Secretary Timothy Geithner submitted the Obama administration's proposal for avoiding the fiscal cliff.

It includes:

-$1.6 trillion in increased tax revenues over 10 years. This would be realized by increasing top marginal tax rates and capital gains/dividend taxes, as well as limiting deductions for top income earners. Under President Obama's proposal, the Bush tax cuts would expire for the top 2% of tax payers

-the extension of the payroll tax credit or the implementation of a similar stimulus

-the extension of emergency unemployment benefits

-$50 billion in new infrastructure spending

-the blocking of automatic spending cuts

-$400 billion in "unspecified entitlement program cuts"


The Republicans were not happy with the proposal - Senator Roy Blunt said that it was not a "serious proposal".

Republicans believe that an overhaul of entitlement programs should be the focus of any new budget plan, and that tax revenues can be raised through other means, including the limiting of tax deductions. Republicans believe that tax rates should not be increasing for anybody in the country, as the people at the top of the income chain are needed to create new jobs, and that an increase in their tax rates would harm their ability to do so.


The Democrats have been emboldened by the results of the recent Presidential election, and believe that they have the support of the American public in pushing for higher taxes.

This is a game of chicken, as we have a month before there needs to be some sort of a resolution. Who will blink first?

Filed under: General Knowledge

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