fiscal cliff

Lately, one major news item has been popping up everywhere: the ‘fiscal cliff.’ I’ve investigated and in case you’re curious, here is my summary:

The ‘fiscal cliff’ is the popular shorthand term used to describe what the country will face at the start of 2013, when several tax hikes will go into effect while new cuts to governmental spending will be introduced. Together they are worth about $600 billion that will be taken out of the markets – this year – in hopes of lowering the United States debt and saving $1.2 trillion dollars over the next 10 years.

In the coming weeks, this is an economic precipice and investors are worried that America may be heading into another recession. A lot of people think if we go over this cliff and if those tax increases and spending cuts are implemented, a recession – a general slow down of economic activity – could happen early next year. Everyone would feel the effects in their wallets, the job market would fall, unemployment would rise, and people would make and buy less. Woulda coulda shoulda.

The roots of this crisis date back to a set of tax breaks set in place almost a decade ago by [then] President George Bush Jr. in 2001 to hedge off a recession. When you hear about “Bush-era tax cuts,” they are talking about a set of tax breaks given to almost every citizen, which reduced about $1 billion from coming into the government. These cuts were set to end in 2011, but in 2010 President Obama extended the tax breaks till 2013.

Working to hedge this predicted downward turn of the United States economy, both the Republican and Democratic parties are working hard to figure out a deal (a compromise) to lessen the blow to the economy.

They are coming up with a plan to make for a much softer economic landing for the coming year. Democrats want to fix this problem with raising taxes, mainly on the super-rich, which was a big part of the Obama campaign. While Republicans are willing to raise taxes, they are concerned about raising tax on the wealthy. Conversely, Republicans want to focus more on spending cuts and deficit reduction.

– Stew

(Photo Credit: U.S. News)