What Follows Plan B?

     When House Speaker's Boehner decided to go ahead with his "Plan B", we started down a track that seems to lead directly over the "fiscal cliff." I'm not sure that the failure of "Plan B" in and of itself made the jump into the abyss more likely but the lack of progress over the past few days and the fact that the House of Representatives is adjourning until after Christmas makes that terrible outcome seem nearly inevitable.

     At this point, I think the "chained CPI", which would reduce the Social Security Cost of Living Adjustment (COLA), is less likely to come to pass than it was last week. It appears that nothing can be passed in the House of Representatives without Democratic votes and the price of those votes is the end of the chained CPI. The current 2% reduction in the F.I.C.A. tax is almost certain to end on December 31. That might be revived later but I wouldn't bet on it. Social Security and other agencies will almost certainly get hit by sequestration on January 1. Sequestration dramatically lowers the agency's budget and will eventually bring about employee furloughs. However, the Office of Management and Budget is telling agencies to send out messages to their employees that do not mention furloughs. I take that to mean that there is enough leeway for Social Security and other agencies to delay furloughs in the expectation that sequestration will not last long.

     Also, I hate to mention it, but we're approaching the statutory cap on the federal debt. Even with everything that happens with the fiscal cliff, we'll still get to that cap sometime in January or early February. The consequences of getting to that cap are almost incalculable. Even shutting down the federal government will probably be inadequate to prevent the country defaulting on its debts. It may take significant reductions in everything including Social Security payments, which, in its own way, would be a default on a federal debt.