Political Games with the Fiscal Cliff – Christine Lagarde

Posted By on December 10, 2012

While following the Kabuki Theatre between President Obama and congress in Washington DC focused on increasing the top tax rate, christinelagardecutting government spending and dealing with what has become known as the “fiscal cliff,” it was interesting to hear what European’s think of our latest governing hurdle.

The BBC offered up a video interview with Christine Lagarde, the well respected head of the International Monetary Fund where she voiced concern over the “political games” being played in Washington DC, but admits she understands the politics involved. Lagarde warned the fragile economic recovery around the world would suffer if the U.S. in unable to come to an agreement and triggers a recession. Economist for the most part agree that the U.S. will see significant job losses and a 2% decline in economic growth. The projection is not that much better for Canada and Mexico which would also suffer a similar economic decline (maybe 1%) and that Europe which is still trying to dig their way out of a recession. All in all, the world would suffer a slow-down if the American economy (nearly 20%) fails to deal with their fiscal issues.

  BBC – Christine Lagarde (mp3) “They are big boys and can negotiate without my help.”

The BBC headline is was interesting (it has since changed) … considering the kid gloves President Obama has been handled with by the U.S. mainstream media:

Obama Pushes Tax-The-Rich plan 

US President Barack Obama is to address Michigan car workers to build support for his plan to raise taxes on the rich and avert a looming "fiscal cliff".

The visit follows face-to-face meetings with Republican House Speaker John Boehner at the White House on Sunday.

After their first private talks since Mr Obama won re-election, both sides said communication lines "remain open".

Deep spending cuts and tax rises due to take effect on 1 January threaten to derail US economic recovery.

Last week, Barack Obama visited a toy manufacturer in Pennsylvania to talk about his plan

Extended benefits for the long-term unemployed and a temporary cut to payroll taxes are also scheduled to expire at the same time.

International observers, such as Christine Lagarde, head of the International Monetary Fund, have warned that there would be ripple effects for the rest of the world if US lawmakers are not able to agree to a deal.

‘Shifting focus’

Mr Obama’s appearance at a car factory outside Detroit is his latest public outreach effort in recent weeks to sell a plan that would increase taxes for the rich while extending Bush-era tax cuts for everyone else.

The president’s plan calls for $1.6tn (£990bn) in new tax revenue over 10 years.

Mr Boehner, the top Republican in Congress, has said that he is prepared to consider increasing tax revenue – by closing loopholes and limiting deductions rather than raising rates.

Neither side revealed details about the meeting between Mr Boehner and Mr Obama on Sunday, but representatives released identical statements saying "the lines of communication remain open".

On Monday, White House spokesman Jay Carney told reporters travelling with the president to Michigan: "The president does believe that we can reach an agreement.

"We, broadly speaking, continue to engage in this process with important players and stakeholders."

Although Republicans are philosophically opposed to raising taxes, some congressmen have recently suggested they would consider agreeing to Mr Obama’s demand.

Republican Senator Bob Corker told Fox News on Sunday: "There is a growing group of folks looking at this and realising that we don’t have a lot of cards as it relates to the tax issue before year end."

He added that if Republicans accepted the higher top tax rate, "the focus then shifts to entitlements, and maybe it puts us in a place where we actually can do something that really saves the nation".

The Republican counter-offer would aim to collect $800bn in revenue by closing tax loopholes and deductions.

It would also reduce government spending by $1.4tn, raising from 65 to 67 the age of eligibility for Medicare, a popular healthcare programme for the elderly, and by changing the way annual increases in Social Security payments are calculated.

So far, Democrats have appeared reluctant to discuss reforms to major entitlement programmes.

Senate Democratic Whip Dick Durbin told NBC News on Sunday: "We need to address that in a thoughtful way through the committee structure after the first of the year."

The White House has repeatedly said it would not support any deal that did not increase tax rates on the wealthiest.

If a deal cannot be reached, economists say the fiscal cliff would suck about $600bn out of the economy.

The measures were partly put in place within a 2011 deal to curb the yawning US budget deficit.

BBC © 2012


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