US Finances: A Disaster Hangs in the Air

A financial downfall in America seems even more possible now. President Obama has cut his holiday short in order to find a solution to the problem.

But the chances of achieving a broad agreement are rather small. The retiring Congress will gather on Thursday.

The politicians who commented on this recent issue and the possibilities of its prompt resolution have been far from optimistic. According to Kay Bailey Hutchison, a Republican senator from Texas, the only thing that can be achieved now is the passing of some legislative “patch” used to prolong the now-operating fiscal reliefs and give the new Congress time to seek an agreement. This kind of idea has had the support of the White House since talks with John Boehner, representative of the Republican majority in the House, fell through during the week preceding the holidays.

Discord between the Capitol and the White House means that in January the old and much higher tax rates, which were introduced during Bill Clinton’s presidency, will enter in full force.

In addition, a number of fiscal reliefs will disappear. Basically, the government will charge higher advanced personal income tax payments on citizens. It is possible that Americans will suffer the consequences when receiving their first salaries next year. The fiscal cliff also involves necessary cuts to the budget, including funding for the Department of Defense. Economists have warned that such a combination may result in an immediate recession, occurring even in the first half of 2013.

Even before leaving for the holidays, Barack Obama called on leaders of both parties in Congress to pass a law that would prevent a sudden rise in taxes for millions of citizens from the middle class. That way, both sides would gain time to search for a long-term solution to the problem. But the sticking point between the Democrats and Republicans is the idea of higher taxes for rich Americans. The latter wants the ceiling on higher taxes to be raised to $1 million in income per year, whereas the Democrats have recently raised the amount proposed from $250,000 to $400,000, which is unsatisfactory to GOP members.

Boehner’s concession regarding taxes for the rich has met with opposition in his own party. A large group of conservative congressmen have protested, opposing on principle any attempt to raise taxes (those who earn over $1 million per year constitute only 0.3 percent of the whole population). The speaker did not have the majority necessary to introduce new fiscal regulations and shovel the responsibility on the shoulders of the Democratic Party.

If the more moderate members of the parties are be able to reach an agreement, it is going to be accompanied by long negotiations as soon as the new members of Congress have been pledged into office. Many observers of the situation have perceived Obama’s return from holidays as part of his PR strategy.

The images of the president playing golf under the palms of Hawaii in the face of the imminent financial crisis affected his popularity strongly.