As we watched unhappily yesterday, the super committee which was supposed to have come up with $1.2 trillion in budget cuts this week, failed. Democrats do not want to reduce spending and Republicans do not want to raise any taxes. For the second time this year, we have a political stalemate. The market dropped more than 240 points on the day of the announcement.
How does this affect you?
- The payroll tax cut: The stimulus package called for a reduction in payroll taxes, which meant that the average person’s take-home pay increased by about 2% this year, or roughly $930 additional paycheck dollars for about 121 million workers. This cut will lapse by the end of the year, which could result in reductions in spending, and declines in hiring, leading to higher unemployment and slower growth.
- Extended unemployment benefits made possible by the stimulus package will run out. In states like California and Nevada, unemployed workers can now receive up to 99 weeks of benefits (federal and state) and these extended benefits would now lapse affecting roughly 3.5 million Americans.
- A $492 billion cut over 10 years from defense, which comes to about 10% of the military’s budget in the first year.
- Domestic programs will see a cut of 7.8%
- A 2% cut in Medicare. More specifically this would mean that physicians that see Medicare patients will see a 30% cut in their reimbursements.
In many ways, the failure of this super committee barely scratches the surface of the bigger problem — our national debt is close to $15 trillion and the exploding debt was the reason the super committee was set up. Hence, a failure of the committee means a failure to reckon with our indebtedness. More importantly, the failure suggests that political gridlock may be here to stay, or at least until the smoke of the elections is cleared. This is the bigger challenge. Are we entering an era when compromise means that we refuse to make decisions? Does decision making mean we keep moving problems forward and hope we never have to make tough choices? And all this in the midst of a time when Congress’s approval rating of 9 percent is less than what President Richard M. Nixon enjoyed during the Watergate scandal. How do we resolve this problem? Send me your input.