How did we get to this cliff mess?
For weeks, the nation has teetered on the edge of anxiety over what’s been called the fiscal cliff. President Barack Obama, Republican leaders in the House and Democratic leaders in the Senate have tried several attempts at compromise legislation to avoid a series of tax increases and federal spending cuts that would take effect with the new year. Here’s a look at how we got to the edge of the cliff.
How did we get into this mess?
The president and Congress began the script for the fiscal cliff drama a year and a half ago as part of a dispute over another thorny issue — the federal debt ceiling. Republicans in the House and Senate pressured the White House and Democrats to cut federal spending or they wouldn’t agree to raise the debt ceiling, which threated the nation’s top credit rating. As part of a compromise on the debt ceiling, legislation mandated automatic deep spending cuts by the end of 2012 unless Congress and the president enacted a separate bill in the interim. Because that hasn’t happened, the automatic spending cuts approved in 2011 now loom. At the same time, a series of tax cuts, some of which date back to the administration of former President George W. Bush, are set to expire at the end of 2012 as well. The timing of the two events becomes known as the fiscal cliff.
What’s the possible impact of going over the fiscal cliff?
The nonpartisan Tax Policy Center estimates that approximately 90 percent of American households would face paying higher taxes if current tax cuts aren’t extended. Middle-income households could average about $2,000 more in taxes. But the impact of the fiscal cliff extends beyond taxes. For example, about 2.1 million Americans who have been out of work for the longest periods would lose federally funded unemployment benefits without an extension.
The other descent off the fiscal cliff involves federal spending cuts. Most federal agencies and programs could face reductions by 8 percent to 10 percent. The cuts would eliminate $1.2 trillion in federal spending during the next decade. Some programs would be exempt from the automatic cuts, such as Social Security benefits, Veterans Affairs programs and some assistance for the poor.
Where did the term “fiscal cliff” come from?
The mass media, politicians and other observers picked up the phrase “fiscal cliff” from an address made by Federal Reserve Board Chairman Ben Bernanke. A year ago, Bernanke referred to the threat of the nation’s economy falling off a “fiscal cliff” from the timing of expiring tax cuts and reduced federal spending happening at the same time.
What’s the next mess in Washington on the horizon?
The debt ceiling debate again is expected to consume the political debate in Washington early in the new year. Congress faces having to authorize an increase in the debt ceiling in the next two to three months so the federal government can meet its vast array of obligations. But political observers expect a repeat of the last debt ceiling debate in 2011 when Republicans in Congress and the White House clashed on what spending has to be reduced in order for Congress to authorize another debt ceiling increase for the federal government.
Twenty years ago, Congress enacted a debt ceiling oversight on how much debt the federal government can accrue. In December, U.S. Treasury Secretary Tim Geithner indicated that federal borrowing is approaching the $16.394 trillion debt ceiling level.