Less than 24 hours after President Barack Obama won re-election, talk of the looming fiscal cliff -- i.e. the $600 billion in automatic tax hikes and spending cuts set to take effect at the end of the year -- dominated the news coverage.
On Wednesday, U.S. markets fell more than 2% and have continued their downward trend. That same day, Fitch Ratings warned of a debt downgrade in 2013 if Congress fails to stop the cliff. Standard & Poor's already downgraded America's triple-A status last year after politicians battled over whether or not to raise the country's debt ceiling. On Friday, Obama invited congressional and business leaders to the White House to hold fiscal cliff talks next week.
"I'm not wedded to every detail of my plan. I'm open to compromise, I'm open to new ideas, I'm committed to solving our fiscal challenges, but I refuse to accept any approach that isn't balanced," Obama said in his first statement since he won the election on Tuesday.
This week the Congressional Budget Office (CBO) warned again that the fiscal cliff could send the economy reeling back into recession. The nonpartisan federal agency projects the unemployment rate will jump back above 9% by the end of 2013 if no deal is reached. In October the jobless rate was 7.9%.
David Walker, CEO and co-founder of Comeback America Initiative, a group that tries to educate and lobby the public about the need for balanced fiscal reform, joined The Daily Ticker's Henry Blodget in the accompanying video to discuss the looming fiscal crisis.
"I think it is very important that we get a deal before these provisions expire and before the sequester comes in," Walker says.
Walker says he is optimistic a deal will get done before year-end.
"I believe that we are going to come to some reasoned and reasonable agreement," he says. Lawmakers need to "achieve a grand bargain to deal with a much bigger problem which are the large and growing deficits driven by demographics, healthcare costs and an outdated tax system."
For example, he thinks politicians will let the payroll tax cut and extended unemployment benefits expire on Dec. 31. He also thinks Congress will cut defense spending, but not to a level anywhere near the $50 billion in cuts that would take effect next year under the sequester.
Walker says a Congressional grand bargain has to include a combination of tax reform and changes to social insurance and entitlement programs.
But as Henry points out in the accompanying video, achieving any type of compromise is incredibly difficult in a highly partisan Congress. Republicans don't want to raise taxes and Democrats don't want to drastically cut spending.
To that point, Walker remains resolute in his optimism for a deal.
"I think there is a better chance for it to happen because President Obama obviously does not have to stand for re-election....[and] the Republicans don't want to be seen as obstructionist for the 2014 election cycle," he says. "I think it is possible, but for it to happen the president has to demonstrate committed and inspired leadership on this issue."
President Obama is set to address the fiscal cliff in his first post-election press conference at the White House today. He is not expected to put forth a specific plan but rather urge Congress to work together on a deal.
Do you agree with David Walker? Will Congress make a deal by year-end to avoid the fiscal cliff?
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