Phew, that was close!
Like cartoon characters, our elected officials brought the country at full speed toward the now-infamous “fiscal cliff” before jamming on the brakes. The Republicans and Democrats were like Wile E. Coyote and the Road Runner.
Wasn’t that exciting!?
At least we now have another two months before the next financial crisis — the country’s crash into the debt ceiling. Hopefully someone will come up with a colorful catch phrase before that historic event.
But do we really have two months before the debt ceiling crisis?
Technically, we nudged the ceiling on Dec. 31 when the country owed $16.394 trillion, the maximum allowed by law. But Treasury Secretary Tim Geithner pulled some extra money out of his sock and said the cash would buy us another two months before the US would actually start defaulting on its obligations and thus become the biggest deadbeat country ever to exist on this planet.
At this point, you should be humming “God Bless America” because right now we all could all use some inspirational background music.
Geithner has already said he wants to quit as the top guy at Treasury, and you really can’t blame him. The next few months aren’t going to be pretty, even if the Treasury secretary’s calculations about the two-month grace period are correct. And those calculations could be way off.
Bill King — my friend at RamseyKing Securities in Burr Ridge, Ill. — and I think Geithner is misreading a jump in tax revenues at the end of 2012.
Bill walked me through Treasury’s “Summary of Receipts and Outlays” for November, and it shows a large jump in monthly tax payments by individuals — from just $157.4 billion in November 2011 to $177.07 billion this past November.
This would be a good thing if this revenue improvement were being caused by more people getting jobs. But it doesn’t appear to be. FICA payments, which go to Social Security, as well as money paid into state unemployment-insurance pools were all static during that same time frame.
And corporate income taxes dropped from $14.7 billion in November 2011 to $13.7 billion last November.
Those last three figures show that the economy isn’t growing much, an idea that should be confirmed tomorrow when the latest monthly employment figures are released.
So the large increase in tax payments by individuals must have come from some unusual event — probably people taking bonuses and realizing as much income as possible late in 2012 to avoid the expected tax effects of the fiscal cliff negotiations.
While numbers aren’t yet available, the same misleading tax-revenue increase probably happened in December as well.
Washington, of course, is glad to have taxpayers’ money anytime, so those late 2012 payments were a godsend. But they could also be misleading Geithner and Treasury into thinking tax revenues from individuals will continue at that abnormally high pace.
If taxpayers did take year-end bonuses to avoid paying higher tax rates this year, then the government may start seeing a falloff in revenues immediately. And if tax revenues received by Washington start to slide — either because of what I just described or because the fiscal cliff scared the bejesus out of consumers and companies alike and slowed the economy — then we might not have the two months’ breathing room that Geithner promised.
As you read in my not-so-happy New Year’s column — the fiscal cliff negotiations accomplished virtually nothing except to raise taxes on people who are lucky enough to have well-paying jobs.
That extra revenue could be more than offset already by the damage the Keystone Cops-like negotiations did to the economy.
One thing is certain: Our $1 trillion-plus annual budget deficits are not endangered.
Predicting the outcome of the fiscal cliff talks was easy — the Republicans and Democrats had no choice but to come up with something. So they came up with a horrendous deal that does nothing to help this country’s long-term prospects.
Predicting the outcome of negotiations to raise the debt-ceiling limit won’t be as easy. First off, the Republicans came across as being snookered in the fiscal cliff talks, so they’ll want to save face the next time they get a shot at President Obama.
The Obama administration, of course, has already hinted that it would like the debt ceiling to be infinite — which, of course, means no ceiling at all. Since that idea won’t fly with Republicans, the credit rating agencies (which are threatening to downgrade US debt) or foreign investors on whom we rely so much, the next round of negotiations in Washington is liable to be far more difficult and much less entertaining.
So sit back, pop a cold one and enjoy the show. American taxpayers, after all, are paying for this Washington burlesque show. We’ll probably again get to see the asses we hired.