The term “fiscal cliff” is being thrown around a great deal lately and it will only become more prevalent after the election. As the year-end event draws closer, concerns are growing regarding its impact and more attention is being paid to how it will be addressed. A post-election lame duck session of Congress next month will draw much more attention to the issue.
In a nutshell, the fiscal cliff is a combination of abrupt spending cuts and tax increases that will take effect at the beginning of 2013. A comprehensive list can be found here, but the main components are the expiration of tax provisions such as the 2001/2003/2010 tax cuts, the payroll tax holiday, the Alternative Minimum Tax (AMT) “patch” that prevents the tax from hitting more middle class families, and various tax credits coupled with across-the-board spending cuts to defense and non-defense discretionary spending as dictated by the Budget Control Act. Also included are the expiration of expanded unemployment benefits and the “doc fix” that prevents a steep decrease in Medicare payments to physicians.
The fiscal cliff would achieve significant debt reduction, but most economists believe that it would also plunge the economy back into recession because the changes are so abrupt and not well thought out.
Many believe that the fiscal cliff is already affecting the economy as fear on the part of businesses and markets is negatively impacting investment. Recent surveys indicate that uncertainty regarding the fiscal cliff is the primary concern of investors.
Business leaders are so concerned about the fiscal cliff and the national debt that they are banding together to send a strong message to policymakers that they must work together now to come up with a better solution. They are calling for the fiscal cliff to be replaced with a smart, comprehensive debt reduction plan that is phased in over time.
It’s not just corporate CEOs who are concerned about the fiscal cliff and are demanding solutions. A recent survey by CenterForward shows that voters are worried as well. And nearly 300,000 Americans have signed our petition calling on our elected leaders to act now to fix the debt.
There are some who are claim that the fiscal cliff won’t be so bad, at least initially, and that President Obama should let us go over the cliff in order to strengthen his bargaining position. But the President himself has clearly stated that he prefers to get a long-term debt deal that avoids the cliff.
Buckle up. Whether we go off the cliff or not in the end, the trip there will have lots of twists and turns.