What’s a Fiscal Cliff? And What Happens if We Fall Off?
First of all, you won’t find it on a map.
That’s because it’s not made of stone.
The fiscal cliff is a manmade creation – made in our nation’s capital.
And right now, our elected leaders in Washington are living on the edge — leaving the rest of us hanging.
So what is the fiscal cliff?
And how did we get so close to the edge?
It all goes back to two summers ago.
In case you don’t remember, President Obama and congressional Republicans got into a battle that summer over increasing the debt ceiling.
That’s the amount of money the U.S. government is allowed to borrow in order to pay its bills on time.
In the end, Congress approved an increase in the debt ceiling.
But as part of the deal, both sides agreed that if they couldn’t reach a deal to cut the U.S. budget deficit by January 1st, 2013, a series of tax increases and steep spending cuts would take effect.
(BACKGROUND: A “deficit” is when you spend more money than you’re taking in. Before President Clinton left office in 2000, the United States actually had a budget surplus, which means it was taking in more money than it was spending. But during the Bush administration, deficit spending skyrocketed. The reason? A combination of tax cuts, which reduced the amount of money the government was taking in, and major increases in military spending, due to the wars in Iraq and Afghanistan. And the budget has been out of whack ever since.)
Now, when you’re talking about balancing the budget, spending cuts and tax increases might sound like exactly what’s needed.
After all, spending cuts would mean less money going out.
And tax increases would mean more money coming in.
The problem is, the tax increases that would take effect after January 1st would have the greatest impact on the people who can afford it the least – middle and working-class people.
And the programs that would be cut would include the ones that millions of low- and middle-income families rely on – programs such as federal grants to help pay for college.
This week, President Obama launched a full-court press – to use a basketball term – to convince the American public to go along with his plan to keep us from going over the edge of the fiscal cliff.
According to the White House, his plan would prevent a tax increase for 98 percent of all Americans.
But the wealthiest 2 percent would have to pay more – including the president himself.
According to him, that’s only fair, because the wealthiest Americans can afford it.
However, most Republican leaders have strongly opposed a tax increase on anyone – even the wealthiest Americans.
They support a different strategy – a strategy that would close “loopholes” and other tax breaks for the wealthy without increasing anyone’s tax rate overall.
(A loophole is a special exception that allows you to pay less than you’d have to pay otherwise.)
They also say that any deal on the deficit has to include cuts in programs such as Medicare and Medicaid – programs that help the elderly and the poor.
And they claim that the president’s plan would hurt small businesses and put people out of work.
However, if the Democrats and the Republicans cannot keep us from going over the fiscal cliff on January 1st, many independent analysts say the plunge will destroy the nation’s economic recovery – and put millions of Americans out of work as a result.
According to a report by CBS News, analysts at the Tax Policy Center have determined that your parents’ yearly federal tax bill would increase by $3,500, on average.
According to the analysts, those tax increases — and the spending cuts that would take effect at the start of the new year — would suck a huge amount of money out of the economy – money that would otherwise pay people’s salaries.
And that would lead to another steep increase in unemployment, according to a Congressional Budget Office report cited by CBS – just as companies are starting to hire more and more people again.
The Washington Post reported Tuesday that efforts to prevent us from plunging off the fiscal cliff have “accelerated.”
That means they’ve speeded up.
But the deadline for an agreement is now less than five weeks away.
And in the past few years, Congress has built a reputation for failing to get things done – or waiting until the very last second – even if the rest of us suffer for it.
If nothing gets done, neither the Democrats nor the Republicans will come out as winners.
And the rest of us will be the biggest losers of all.