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What is the Fiscal Cliff?
As the presidential debates evidenced last night, the economy is a major concern for many Americans. In fact, several people have been mentioning the “fiscal cliff” when calling in and talking with our customer service team.
So, what is the fiscal cliff?
The “fiscal cliff” is a term that refers to the problem that the government will face at the end of the year when the terms of the Budget Control Act of 2011 are scheduled to take effect. They include items of tax increases, drastic spending cuts, debt limits, and unemployment benefit expirations.
Tax Increases
President George W. Bush’s signed tax cuts into effect during 2001 and 2003. In 2010, President Barack Obama signed a two year extension of those tax cuts. At the end of the year, those tax cuts are set to expire and the tax rates will be raised to what they were before the Bush tax cuts. That translates into a tax increase for more than 80 percent of Americans.
Spending Cuts
So, you remember those debt limit negotiations a few months ago? Theeeey’re back! The two parties had settled on the Budget Control Act of 2012 during their negotiations to increase the nation’s debt limit.
The Act set up a “super committee” to negotiate a deal to reform taxes and reduce entitlements. In order to motivate the super committee, the Act put in place automatic spending cuts that would take place if the super committee failed to reach an agreement. The super committee did fail. That means that at the end of the year, there will be about $1 trillion of automatic spending cuts over the next 10 years beginning January 1. Half of those cuts will be to the Department of Defense’s budget.
Debt Limits
Another thing with those debt limit negotiations: The two parties only agreed to raise the nation’s debt limit long enough to get past the elections in November. That means that around the end of the year, there will be another debate about what to do about the debt ceiling. If Congress fails to reach an agreement and does not increase the debt ceiling, the federal government will likely default on many promised payments.
Unemployment Benefits
Congress has steadily increased the length of time that a person can receive unemployment benefits since the recession in 2008. The last extension is set to expire at the end of 2012. While this probably wouldn’t be a problem in other years, this could present a problem when coupled with all the other cuts in the Budget Control Act.
Possible Effects of the Fiscal Cliff
The Congressional Budget Office (CBO) has expressed the concern that the fiscal cliff would slide the U.S. economy into a significant recession. According to the CBO’s report, the economy would shrink by 2.9 percent in the first half of 2013 and by 0.5 percent during the whole year. The fiscal cliff would also potentially raise the unemployment rate from 8.1 to 9.1 percent.
A positive point coming out of the fiscal cliff is that it would slow the deficit. During 2013, the CBO projects that the nation would only increase their deficit by $641 billion instead of $1.13 trillion.
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Let’s Discuss
So, what are your thoughts? Comment below and tell us what you think about the fiscal cliff.
We only “borrow” 641 billion a yr vs 1.13 trillion??? Our money is becoming worthless, inflation is not reported, the numbers of government flunkies grows, and they expect the working people of america to continue to support their greedy union demands..why worry about the fiscal cliff when the whole thing is being dismantled by the corrupt and vile lawyer cabal aka the american government.
October 4th, 2012 at 3:48 amI agree. The Fiscal Cliff and other factors could work together to bog down the economy at anytime between now and likely by the end of the first quarter 2013. Note, during the “Great Depression” of the 1930s, there was a similar partial recovery embedded around the 1934-36 period. Everyone thought the economy was on the mend, people in the stock market lost more on the secondary crash than they did on the more public initial “1929″ crash. So here we are waiting for the second shoe to fall.
October 4th, 2012 at 6:04 amA very good explanation. However, our government has a history of not addressing serious problems like this. Instead they prefer to “kick the can down the road” to attempt to delay it. Instead it only makes the situation worse. Look for the same thing to happen now. The problem is the economy is struggling now. A delay in a repair, which will be painful, will only guarantee an economic collapse.
October 4th, 2012 at 7:43 amMy Thoughts? That you forgot to mention that you’re speaking in the short-term scenarios of wanting things to be good right now. The very same COB article you quote says further down
“However, eliminating or reducing the fiscal restraint scheduled to occur next year without imposing comparable restraint in future years would reduce output and income in the longer run relative to what would occur if the scheduled fiscal restraint remained in place.”
October 4th, 2012 at 7:58 amThe Fiscal Cliff will be here if the two major parties do not work out their differences. The biggest problem will be the GOP agreeing to increased taxes and the end of the Bush Tax Cuts while at the same time look at spending cuts that will not throw the economy back into a major recession or worst an economic depression. It will be much more severe that the Great Depression, as we have more people living in the country today than in the 1930′s. Most Americans are hopeful that this will not happen, but in reality should prepare for the worst case. Historical I agree with the Larry’s comments above.
October 4th, 2012 at 8:34 amI’m a young widow. My income now is not enough to get by on. When my husband died, I also lost his retirement and healthcare. When I look at food storage, I’ve done some, but I get overwhelmed. I’m trying not to be frightened when I read things like this – but the truth is, I am.
October 4th, 2012 at 9:01 amI need some advise.
Well, this is exactly what the marxist’s want. No surprise…
October 4th, 2012 at 10:29 amless debt…sometimes comes from inability to borrow caused by existing debt or cuts in ability from a 6 or more year record of past issues whether you have resolved them or not
mistakes cost money
they cost your record
and disinclination to accept monies when your decision is made up
dont assist in sorting out messes quickly
fraud cases result in prison sentences
and i wonder how many things are sorted out re the defrauded against
and in reality if the fraudster goes back out after term
and seem suitably equiped to repeat rather than avoid pitfalls
and i wonder how many cover for the fraudsters job
unwittingly or willfully encouraged by those that cannot tell fact from fiction
and lies from the truth
and those that say not reall….are they just trying to win a meal cos cuts in benefit in real terms or problems for family relatives are squeezed
October 4th, 2012 at 11:10 amby only knowing one member and not seeing the unregistered births
and the life after death creations of
coma related recovery
It is so amazing that the government cannot understand the financial truthes that everyone else has to live by.
If I were to pay my debt by borrowing enough to pay just the interest, plus new spending, I would end up bankrupt and/or in jail. But these jokes don’t see it and expect us to ignore it too.
Well, we got the government that the majority of us seem to have chosen. So, like the Mel Brooks song says, “Hope for the best, expect the worst!”
October 4th, 2012 at 2:01 pmMarji, I’ve been scared for about 3 years now and have been activily trying to store some extra food up since then. When i get a bit extra, i will order a can or two from food storage company…but mostly i try to can my own chili, soups and any cheap produce that i can find in season. Also if I’m out of say a can of green beans, when I go to the store, i don’t buy just one, I buy two and same next time i use that one. That adds up fast and you are getting what you normally eat. Save any 2 liter drink bottles, clean them out and fill with clean water adding about an eigth of a tsp. of PLAIN clorox to them. seal and store in cool dark place will keep a very long time.
October 4th, 2012 at 2:48 pmTo the young widow: There is a book you can check out from the library called THE TIGHTWAD GAZETTE by Amy Dacyczyn. Desperate times call for desperate measures and she has some very practical advice. Good luck to you.
October 4th, 2012 at 3:31 pmIt is vital that we stay focused and unified as a nation, after-all we are the “United” States of America. When we begin thinking we are defeated we are on a slippery slope which leads to fulfillment. My ancestors came to Ametica in the 17th century to find religious freedom. For nearly 5 centuries my ancestors have fought in every war and survived, they survived the Dust Bowl, personal financial disasters, the Stock Market crash, etc. I come from survivor, no overcomers stock, so I will stay focused on what I can do, prepare as I am able, keep from murmuring, know the enemy and repent for my part in allowing the downward spiral of our beloved country, a country my ancestors fought and died for; and leave the rest up to our great and mighty God..
October 5th, 2012 at 8:05 amFlatlander, I’m already on my knees, thanks for the reminder… LB Ryan, ditto on the book. Got it; couldn’t pay me to part with it. Marji…you’re in my prayers, hopefully you will find the Truth. I’m learning self-sufficiency like I thought I never would. I am learning that the more I have to do without, the more my mind actually starts working.
October 5th, 2012 at 3:28 pmUsing the President’s 2013 Proposed Budget, with inputs from the IRS, BLS, SSA (and a host of other government agencies), I am able to project the results of the increased taxation, obamacare and the fiscal cliff and illustrate what the average American will be going through in just 8 years. It’s not pretty.
Please see my paper –> http://www.scribd.com/doc/107058480/Life-in-2020
October 5th, 2012 at 10:02 pm