Congress is scheduled to return to Washington in a couple weeks and I wanted to give you a heads up as to what you should expect to see.

At this point, you’ve probably heard plenty about the “fiscal cliff” that is scheduled to happen on January 1^st, but I know a lot of people still have questions about what that means.

In short, it is a combination of across-the-board tax increases and huge automatic spending cuts all scheduled to start at the first of the year.  If Congress and the President do nothing, these tax increases and spending cuts will happen automatically.  And although both sides agree that this would be disastrous for the economy, we are struggling to get the President (let alone the Senate) to tell us what their plan is. All we know so far, is that the President has based his whole campaign around raising taxes on those making $250,000 and up (which includes small businesses).

So this is where we stand on the “taxmageddon” part of the “fiscal cliff”: Ever since the recession, both the President and a huge number of Democrats in Congress have agreed that extending all of the current tax rates is the responsible thing to do. 

And the history on this is worth noting:

In the 4^th Quarter of 2010, as President Obama was calling for an extension of all of the current tax rates, government data showed the economy growing at a rate of 3.2%.  And although that was still too slow for a recovery, it was substantially better than the 2.6% increase they had seen in the previous quarter. In any case, President Obama argued that the economy was too weak for him to raise taxes.

So where does it stand now?

Well, the economy has slowed down considerably.  Growth over the last three months was only 2% and in the previous quarter of this year was only 1.3%. That’s literally the worst six months we've seen since 2009.  So, in short, President Obama thought that the economy was too weak for tax hikes then, but economic growth is weaker now.  To some of us, it still seems like a bad idea.

It’s not clear what the final outcome will be and a lot will depend on who wins the White House.  In either case, it is highly unlikely that nothing will be done and the “taxmageddon” will be allowed to happen.

On the Defense spending piece, it’s a little more complicated.  Here is the back-story: Congress and the White House agreed months ago to an initial round of cuts for the Pentagon budget totaling more than $400 billion.  Then, as part of the Budget Control Act, a second round of automatic Defense cuts was used as an incentive for the parties to come together on a comprehensive budget deal.  It was thought that this second round of half-a-trillion in Defense cuts would be so unimaginable to people that the bipartisan negotiators for the House and Senate would be able to reach a deal.  That didn’t happen and as a result, those unimaginable cuts are scheduled to start kicking in on January 1.

Months ago, realizing that the initial efforts had failed, the House voted to pass a replacement bill that would prevent the so-called “sequestration” cuts from gutting our military.  The Senate, on the other hand, never passed an alternative.  In fact, they didn’t even propose an alternative.  And neither has the President, for his part.

During the debate earlier this week, the President seemed to declare that the Defense sequestration cuts would not happen.  He seemed to say it unequivocally.  But then his press secretary immediately started walking it back.  So who knows what the White House is really thinking?

All I can tell you with certainty is that the President’s own Defense Secretary, as well as retired Defense Secretary Robert Gates and former Chairman of the Joint Chiefs, Mike Mullen have all come out and said this would be a disaster for the military.  And I like to think that if I were the Commander-in-Chief, and my own Defense Secretary(s) were telling me that if I didn’t do something, the United States military was in jeopardy, I think I would probably take the lead on that – and taking the lead would probably mean more than making one, single declarative statement that my staff started to walk back almost as soon as I’d said it. 

But I’m not the Commander-in-Chief.  President Obama is.  And when people ask me what’s going to happen with sequestration, all I can tell them is that the House passed a bill to fix the situation back in May and in all the time since, I haven’t seen a single plan come out of the White House or the Senate.  I am sure it will get fixed, but I really can’t guess what the Democrats are thinking on this.  It defies all reason.

I think all of this will get clearer after the election, but in the meantime, it’s just a lot of hypothetical possibilities.  If you do have any questions about any of this, or there is something you think I should see or hear, please don’t hesitate to get in touch.  Like always, I’m around.  Thanks again.

Sincerely,

Rich Nugent

Member of Congress