Whether or not there is a deal, the weeks since the election have produced a stark display of political gridlock. “The government is not working,” said Steve Bell, senior director of the Bipartisan Policy Center, who was a senior budget adviser to Senate Republicans for many years. “There is no doubt that the policy-making apparatus in this town has collapsed.”

Following the tea-party wave in the 2010 election, the 112th Congress looks set to be the least productive in recent history. By the end of November, the House had passed 146 bills over the previous two years, by far the smallest number for any Congress since 1948. The Senate passed fewer bills in 2012 than in any year since at least 1992.

Rather than smoothing over differences, the November election appears to have hardened them. “We came out of the election with both sides thinking they won and had an equal mandate,” said Ross Baker, a professor at Rutgers University who is now interviewing lawmakers on Capitol Hill for a book on bipartisanship. “One problem is we don’t have a common narrative to guide us.”

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I will take comments on this submitted by email only to at KSHarmon[at]mindspring[dot]com.

A long line of America’s top chief executives have rotated through Washington in recent weeks, loudly urging lawmakers and the White House to reach a broad deal to fix the budget. They once sounded optimistic. Now many of them aren’t talking, and if they are, they’re gloomy.

Mark Bertolini, chief executive of health-insurance company Aetna Inc., called the state of play “pitiful and embarrassing,” saying the chances are growing that a deal might not be reached by the end of the year to avert $500 billion in tax increases and spending cuts.

“Set aside my interest as the CEO of a participant in the economy here””as an American, I’m embarrassed if that’s where we end up,” Mr. Bertolini said in an interview. “It feels like it’s starting to fall apart.”

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Budget negotiations between the White House and Republican House Speaker John Boehner have progressed steadily in recent days, people close to the process said, breathing life into talks that appeared to have stalled.

Both sides still face sizable differences before any agreement might be reached by the end of the year, and talks could well falter again over such controversial issues as taxes and Medicare before any deal is ultimately reached.

The people familiar with the matter say talks have taken a marked shift in recent days as staff and leaders have consulted, becoming more “serious.” Both sides have agreed to keep details private, according to the people, who declined to detail where new ground was being broken.

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From there:

[Here is a list of]…the most expensive tax breaks in the current tax code, based on what those breaks would cost the U.S. Treasury in lost revenue from 2013 to 2017:

1) Exclusion of employer contributions for medical insurance premiums & medical: $1 trillion

2) Mortgage interest deduction: $606 billion

3) Deduction for 401(k) plans: $429 billion

4) Accelerated depreciation of machinery & equipment: $375 billion

5) Exclusion of net imputed rental income: $337 billion

6) Capital gains: $321 billion

7) Charitable contributions: $293 billion

….seasoned Washington hands say that once this rather gloomy back and forth has played out – and it might take another week or more – the work towards reaching a solution that both sides can sell to their parties and their lawmakers will begin in earnest.

A deal by Christmas, a week before the fiscal cliff deadline, remains uncertain but not out of the question. The so-called fiscal cliff is a combination of U.S. government spending cuts and tax increases due to be implemented under existing law in early 2013 that may cut the federal budget deficit but also tip the economy back into recession.

The pattern of little happening until very close to a holiday is well-established on Capitol Hill. The past three pre-Christmas seasons brought important eleventh-hour developments on health care in 2009, tax cut extensions in 2010 and the payroll tax holiday in 2011.

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….President Obama’s call for a return to Clinton-era tax rates is misleading: If the Bush upper-income tax cuts go away, tax rates will exceed those in place at the end of the 1990s.

The top effective federal marginal tax rate on work income would rise to roughly 44.6% from 37.9% in 2012.

That’s higher than under President Clinton because of a 0.9-percentage-point Medicare payroll tax hike for upper-income households, which passed with Obama-Care and takes effect in January.

Tax rates on long-term capital gains also will be higher than when Clinton left office if Bush tax cuts expire as ObamaCare’s new 3.8% Medicare tax on investment gains takes effect. Up to now, only wage and salary income has been subject to Medicare taxes.

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At first blush, it seems to make policy sense, too. The rich fabric of America’s civic life, from Boy Scouts to community orchestras to soup kitchens, is the envy of the world. Its diversity reflects in part how much it depends on private givers with diverse interests and motives, and not just on the government. Their giving is encouraged by the charitable deduction, enacted in 1917, just four years after the income tax itself. The deduction lets people feel they are beating the system even as they practice virtue.

But there’s a question of fairness that complicates the issue. Overwhelmingly, the deduction benefits the wealthy ”” and the rest of the country has to make up the gap.

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I listened to NPR yesterday for over an hour back and forth from a doctors appointment.

The entire time they talked about President Obama’s proposal to implement the middle class tax cut now.
Everywhere I turn its middle class tax cut, middle class tax cut…

Except it isn’t but no one thinks about these things.

What is being proposed is not letting the current tax code STAY THE SAME.
So 98% of Americans WON”T HAVE A TAX INCREASE.

Since when is not having an increase a cut?

Anyone you know say I am getting the same number of days vacation this year as last year I am angry I get a benefits cut!

President Obama’s re-election and Democratic gains in Congress were supposed to make it easier for the party to strike a deal with Republicans to resolve the year-end fiscal crisis by providing new leverage. But they could also make it harder as empowered Democrats, including some elected on liberal platforms, resist significant changes in entitlement programs like Social Security and Medicare.

As Congress returned Monday, the debate over those programs, which many Democrats see as the core of the party’s identity, was shaping up as the Democratic version of the higher-profile struggle among Republicans over taxes.

In failed deficit reduction talks last year, Mr. Obama signaled a willingness to consider substantial changes in the social safety net, including a gradual increase in the eligibility age for Medicare and limits in the growth rate of future Social Security benefits. An urgent question hanging over the new round of deficit talks is which of those changes Mr. Obama and Congressional Democrats would accept today….

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For the first time in decades, a bipartisan consensus has emerged in Washington to raise taxes. But negotiators working to avert the year-end “fiscal cliff” remain far apart on crucial details, including how taxes should go up and who should pay more.

Neither side gave ground in an opening round of staff-level talks last week at the Capitol. As President Obama and congressional leaders prepare for a second face-to-face meeting as soon as this week, the divide over taxes presents the biggest obstacle to replacing the heap of abrupt tax hikes and spending cuts, set to hit in January, with a less-traumatic debt-reduction plan.

People in both parties are exploring ideas for bridging the gap. Without a deal on taxes, there is not much hope for agreement on a broader strategy for restraining the national debt that also tackles the skyrocketing cost of federal retirement programs such as Social Security and Medicare.

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Congressional negotiators, trying to avert a fiscal crisis in January, are examining ideas that would allow effective tax rates to rise for the wealthy without technically raising the top tax rate of 35 percent. They hope the proposals will advance negotiations by allowing both parties to claim they stood their ground.

One possible change would tax the entire salary earned by those making more than a certain level ”” $400,000 or so ”” at the top rate of 35 percent rather than allowing them to pay lower rates before they reach the target, as is the standard formula. That plan would allow Republicans to say they did not back down in their opposition to raising marginal tax rates and Democrats to say they prevailed by increasing effective tax rates on the rich. At the same time, it would provide an initial effort to reduce the deficit, which the negotiators call a down payment, as Congressional tax-writing committees hash out a broad overhaul of the tax code.

That idea could be combined with the reinstatement of tax code provisions that once prevented the rich from taking personal exemptions or itemizing deductions. Those rules were eliminated by the tax cut of 2001. Reinstating them would tack an additional one to two percentage points onto the effective tax rates of high-income households without raising the 35 percent rate, but which households would be affected has not been decided. In all, tax experts say, families in the top tax bracket would find their effective tax rate jump to 41 percent, even though the top statutory rate would remain 35 percent.

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Most of the increases would result from the expiration of Bush-era tax cuts, which would cause marginal rates to rise. Simultaneously, several temporary tax breaks pushed by President Barack Obamaafter the financial crisis also would end.

And most households””121 million in all””would be hit by an increase in the payroll tax that employees pay to 6.2% from 4.2%.

Also expiring at year-end is a provision to reduce the so-called marriage penalty, a set of tax provisions that require many couples to pay higher taxes when they file jointly. And millions more families’ earnings this year would be subject to the alternative minimum tax. The AMT was originally intended to prevent the very wealthy from avoiding taxes but would apply to middle-class households if policy makers don’t renew a provision that expired last year.

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…the biggest loopholes in the U.S. Tax Code ”” generally referred to as tax expenditures ”” aren’t just the tricks of the trade for millionaires with offshore bank accounts. For the vast majority of Americans, they’re just how things work: You don’t pay taxes on your health insurance or Medicare benefits; you contribute tax-free to your 401(k); and your mortgage interest pushes down your tax bill each year.

And even if you dump the biggest of the set, these tax perks don’t even come close to closing the deficit. At best, the top 10 would pull in an extra $834 billion a year, according to Joint Committee on Taxation figures. Considering the hole lawmakers are trying to fill is several trillion dollars large, it’s clear they wouldn’t even come close.

Here are the 10 biggest tax loopholes ”” and the reasons why most of them will survive the fiscal cliff….

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Of the two programs, Social Security is by far the easier to fix. In 1983, a bipartisan agreement shored up the program for decades. It can be rescued again, much as it was then, by gradually raising the retirement age for able-bodied workers and bumping up the payroll tax. Other options include slowly reducing the rate of benefit growth, raising the wage cap and tightening eligibility requirements for disability

The more urgent and difficult issue is the surge in spending on Medicare, Medicaid and related programs. The numbers tell the story. In 1990, Washington spent $180 billion on health care, accounting for 14% of federal spending. In 2017, the expected tab is $1.4 trillion, or 30% of federal spending. As President Obama said at his news conference Wednesday, “Health care costs continue to be the biggest driver of our deficits.”

One obvious place to start is bringing the Medicare eligibility age in line with that of Social Security. In their failed budget negotiations in 2011, Obama and House Speaker John Boehner tentatively agreed to raise it from 65 to 67. Such a rise would cut the government’s bill while increasing the share of the population in market-based health care.

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The Federal Housing Administration is expected to report this week it could exhaust its reserves because of rising mortgage delinquencies, according to people familiar with the agency’s finances, a development that could result in the agency needing to draw on taxpayer funding for the first time in its 78-year history.

Such a report would likely set off a political fight over the government’s role in housing, as it raises the prospect of billions of dollars being added to the U.S. government’s effort to stabilize the hard-hit sector in the aftermath of the 2008 financial crisis, which already includes $137 billion spent to bail out Fannie Mae and Freddie Mac. Together with Fannie and Freddie, federal agencies are backing nearly nine in 10 new mortgages.

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As the high-stakes wrangling over the fiscal cliff gets underway, we though it might be the proper moment to remind everybody just how the United States managed to become the world’s biggest debtor.

So, here’s how….

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Should lawmakers not reach agreement prior to the end of the year, the US budget deficit for 2013 would be cut almost in half, to $560 billion.

Which doesn’t sound like a bad thing. After all, the US is staggering under a monumental pile of debt and could potentially begin to face the kinds of difficulties that have plunged several euro-zone countries into crisis. It is a viewpoint shared by the ratings agencies — a year ago, Standard & Poor’s withdrew America’s top rating, justifying the measure by pointing to the unending battle over the debt ceiling. The agency noted that “the political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed.”

From afar, it is difficult to argue; the ongoing battle between Democrats and Republicans in the face of a horrendously imbalanced budget looks catastrophically absurd. As their country heads toward the edge of the abyss, lawmakers preferred to debate whether or not French fries and pizza should be considered vegetables.

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Heavenly Father we ask that you will have mercy on America today and bless us in spite of ourselves. We ask that you will give wisdom to all who go to the polls to cast their votes. Help us as we make difficult decisions on a variety of issues and as we seek to elect men and women who will hunger for righteousness and seek the common good to positions of authority in our towns and cities, in our states and in our nation. We pray against any voter fraud or any corruption of proper voter access and ask that justice be done in each and every election, whatever the locale. We also pray for peace and grace with one another as the results are received and digested, through Jesus Christ our Lord, who with you and the Holy Spirit lives and reigns in glory everlasting, Amen–KSH.

Finance chiefs of the world’s 20 leading economies are ringing alarm bells over the U.S. fiscal cliff and Europe’s debt woes at a meeting in Mexico this weekend as they look to push back deficit reduction targets to help boost growth.

Unless a fractious U.S. Congress can reach a deal, about $600 billion in government spending cuts and higher taxes are set to kick in on January 1, threatening to push the American economy back into recession and hit world growth.

“The Americans themselves acknowledge that this is a problem,” a G20 official said on condition of anonymity. “The U.S. administration says it doesn’t want to fall off the fiscal cliff, but right now it can’t tell us how exactly it will address it because that issue is on ice ahead of the election.”

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The CIA is urging the White House to approve a significant expansion of the agency’s fleet of armed drones, a move that would extend the spy service’s decade-long transformation into a paramilitary force, U.S. officials said.

The proposal by CIA Director David H. Petraeus would bolster the agency’s ability to sustain its campaigns of lethal strikes in Pakistan and Yemen and enable it, if directed, to shift aircraft to emerging al-Qaeda threats in North Africa or other trouble spots, officials said.

If approved, the CIA could add as many as 10 drones, the officials said, to an inventory that has ranged between 30 and 35 over the past few years.

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Indeed, the impact of this latest round of unconventional monetary policy is already fading. Analysts at Morgan Stanley this week decided that returns in the high-yield market were no longer attractive in the face of deteriorating fundamentals. The stock market is struggling to make further headway, while yields on mortgage-backed securities have started to turn up after an initial drop. A drop in third-quarter capital expenditure suggests the Fed policy hasn’t been a catalyst for corporate investment at all.

One major reason for the lack of effectiveness of this latest round of quantitative easing may well be a growing concern with the “fiscal cliff”, automatic US tax rises and spending cuts due to kick in on January 1. Uncertainty over “cliff risk” ”“ and the prospects of a deal in Congress on deficit reduction ”“ seems to be offsetting any positive impact of Fed policies.

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An Episcopal priest who, with her husband, brings in about $65,000 a year tells Marketplace that they are lower middle class. A woman posting at dcurbanmom.com identifies her family as middle class, and their income is $100,000 a year. CNN talks to a man struggling to save for his son’s education who defines “middle class” as families with too much to qualify for federal Pell Grants””which is at most about $48,000 for a family of three. I was eligible for Pell Grants, and before that for subsidized school lunches, but I’ve always understood my family of origin to be middle class.

A majority of Americans consider themselves middle class, a recent Pew survey found, despite a wide variance in their earnings. So what does “middle class” mean if it applies to most of the country? And if we are all middle class now, what are the political and cultural implications?

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From an interview with the authors of the Simpson-Bowles reform plan and Goldman Sachs CEO Lloyd Blankfein:

“…We just met with — a dozen of the largest high-tech company CEOs in the country. Not only are they hoarding cash. All their customers, all their suppliers are. They’re scared to death we’re going to go over this cliff and it could be a catastrophe….”

You can find a summary article to read there, it has briefer video links, but the best use of your time is to watch the full interview over here or read the transcript (about 42 1/2 minutes). Also, David Brook’s piece on the debt indulgence is worth a careful revisit.

And to draw, dear reader, what I think are critical relative comparisons, look at who’s in that ring of fire alongside the U.S. There’s Japan, Greece, the U.K., Spain and France, sort of a rogues’ gallery of debtors. Look as well at which countries have their budgets and fiscal gaps under relative control ”“ Canada, Italy, Brazil, Mexico, China and a host of other developing (many not shown) as opposed to developed countries. As a rule of thumb, developing countries have less debt and more underdeveloped financial systems. The U.S. and its fellow serial abusers have been inhaling debt’s methamphetamine crystals for some time now, and kicking the habit looks incredibly difficult.

As one of the “Ring” leaders, America’s abusive tendencies can be described in more ways than an 11% fiscal gap and a $1.6 trillion current dollar hole which needs to be filled. It’s well publicized that the U.S. has $16 trillion of outstanding debt, but its future liabilities in terms of Social Security, Medicare, and Medicaid are less tangible and therefore more difficult to comprehend. Suppose, though, that when paying payroll or income taxes for any of the above benefits, American citizens were issued a bond that they could cash in when required to pay those future bills. The bond would be worth more than the taxes paid because the benefits are increasing faster than inflation. The fact is that those bonds today would total nearly $60 trillion, a disparity that is four times our publicized number of outstanding debt. We owe, in other words, not only $16 trillion in outstanding, Treasury bonds and bills, but $60 trillion more. In my example, it just so happens that the $60 trillion comes not in the form of promises to pay bonds or bills at maturity, but the present value of future Social Security benefits, Medicaid expenses and expected costs for Medicare. Altogether, that’s a whopping total of 500% of GDP, dear reader, and I’m not making it up. Kindly consult the IMF and the CBO for verification. Kindly wonder, as well, how we’re going to get out of this mess.

Please take the time to read it all and examine the chart closely. The only difference on this between Mr. Gross and myself is that I believe he understates the problem with the 60 trillion dollar figure. As has been discussed on the blog in the past, the correct figure may be as much as three plus times that amount–KSH.

According to the non-partisan Tax Policy Center, the U.S. is on the threshold of one of the largest tax increases in history, a tax hike that could average $3,500 for every American household.

Without actions from Congress, the report says taxes will go up next year by 20 percent, or $536 billion overall. It will hit Americans at every income level including those living below the poverty line. For a middle income family making $40,000 per year, the tax increase is $2,000.

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Would an expansion of Medicaid under the federal health-care law help or hinder South Carolina’s finances? Depends who you ask.

Strains of disagreement are building against the backdrop of a campaign by Gov. Nikki Haley’s administration to build opposition to an expansion.
Generally opposed by Republicans and favored by Democrats, the debate over whether to expand the Medicaid program in the states is set to play out in many statehouses across the country. That’s because a June Supreme Court ruling made the extension of coverage optional.

In the Palmetto State, advocates for the expansion contend Haley’s administration is emphasizing the costs and underselling offsetting economic benefits of an expansion.

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Watch it all.

More big U.S. companies are reincorporating abroad despite a 2004 federal law that sought to curb the practice. One big reason: Taxes.

Companies cite various reasons for moving, including expanding their operations and their geographic reach. But tax bills remain a primary concern. A few cite worries that U.S. taxes will rise in the future, especially if Washington revamps the tax code next year to shrink the federal budget deficit.

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It’s game on. But to understand the contest ”” and the associated scare tactics ”” it’s best to first understand a few unpleasant facts that are not in dispute:

”¢The popular old-age health insurance plan is on a financially unsustainable course. Medicare’s payroll tax and premiums that beneficiaries pay cover barely half the program’s costs, and as Baby Boomers retire, things will get worse. The tab is projected to rise rapidly: 7.6% a year for the doctor-care part of Medicare and 8.8% for the program’s prescription drug benefit, for example. The economy, a rough proxy for the nation’s ability to afford this, is growing less than 2% a year, leaving a huge gap.
”¢There is no painless fix. Both presidential candidates have committed to detailed plans for curbing costs, and no matter who wins, beneficiaries will pay more or get less, likely both. People who say otherwise are deluding themselves. As economist Herb Stein famously said: Anything that can’t go on forever won’t.

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Most economists surveyed by USA TODAY have little faith a divided Congress will adequately address looming tax increases and spending cuts, significantly hampering economic growth well into 2013.

The standoff in Washington, along with the global economic slowdown, threatens a U.S. economy that otherwise would be gaining steam on a strengthening U.S. housing market and improving private-sector balance sheets, economists say. The survey of 50 leading economists was conducted Aug. 3-8.

Fifty-three percent of those surveyed don’t think Congress will be able to lessen the impact of $560 billion in tax increases and spending cuts, slated to take effect at year’s end, in a way that avoids significant damage to the economy. The Congressional Budget Office says the so-called fiscal cliff would slice up to 4 percentage points off growth next year — causing the economy to contract in the first half — if all the deficit-slicing measures occur at once.

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