The Fiscal Cliff in a Few Bullet Points
Surely you've heard much chatter regarding the looming fiscal cliff. In simple terms, the cliff represents imminent decisions that must be made when the initiatives mandated in the Budget Control Act of 2011 are scheduled to take effect. To be clear, these include:
- The end of last year's payroll tax cuts. This will result in a 2% tax increase for workers.
- The end of certain tax breaks for businesses (many small businesses WILL feel the effect.)
- Agreed upon automatic spending cuts begin
- More than 1,000 government programs scaled back (including defense budget and Medicare.)
What does this all mean? Well, it means that our political party leaders have a few unattractive options from which to choose.
- They can elect to simply allow formerly agreed upon mandates to take effect, which are expected to undermine growth and possibly drive the economy back into recession. (On the plus side, it would go a long way to reduce the deficit - over time, of course, beginning with about $500 Billion immediately.)
- They can renegotiate terms by canceling some of the tax increases and spending cuts. This would likely add to the deficit and possibly set the Country up for a similar crisis as the one being faced in Europe. (Ask them how they like it.)
- Or they could try to take middle ground and attempt to approach the budget issues to a limited extent, with a more modest impact on growth.
"We the People, in order to form a more perfect union," are pretty much counting on our Leaders to be smart for a change. There is room for both sides to move and they had better do it – now. For after all, a cliff can be easily negotiated if whittled into simple, measured, steps. As you read this, President Obama and Speaker of the House John Boehner are currently in private talks, seeking a resolution. Let's keep our fingers crossed that logic prevails over political posturing.