Hold on to Your Hats, We're Going Over the Fiscal Cliff

By Michael Glantz on January 1, 2013
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After halting negotiations on Sunday with a deal apparently no closer, it seems highly unlikely that Congress is

CBSnews

going to be able to bridge the gap in the few hours before the cliff. After all, this fiscal cliff trap was set up a while ago by lawmakers to force themselves into action and after almost two years there is as much daylight between the parties as ever. Democrats and Republicans alike insist that it’s the other party that is holding up a deal. Obama says Republicans’ refusal to let tax rates increase is at fault for the impasse and Republicans say that using new revenue from the rate increases for new stimulus spending is the major concern. Other Democrats in the Congress were pushing back against a proposed change to how Social Security benefits are calculated, a concession Obama had offered in talks with Speaker Boehner. That provision was apparently dropped.

Both the House and the Senate were scheduled to be in session New Year’s Eve but it is unclear if they will be able to strike a deal. Some parts of the Fiscal Cliff may be averted before they go into effect but the provisions that have a small grace period after they take effect to be reversed will probably be put off into the New Year. The problem with putting off dealing with those provisions is the same problem putting off dealing with the Fiscal Cliff sooner had. Congress doesn’t do anything fast. They keep kicking the metaphorical can of issues down the road because they keep running into severe gridlock whenever those issues come up for debate. Vowing to deal with parts of the Fiscal Cliff after they happen seems like an empty vow coming from Congress.

So, what would happen if we go over the cliff? Most economists seem to agree that it will be bad if we go over the cliff and stay there for too long. The general hope is that Congress will at least be able to pull us back up from the cliff should we go over it. But if we stay off the cliff, everybody’s taxes will be higher. Most people are aware of the income tax increases that are a part of the cliff because that’s what Congress has been arguing about the loudest. However, there are other tax increases and spending cuts in the Cliff law that will affect millions of Americans. For starters the 2% Payroll Tax holiday is set to expire which was passed two years ago to let Americans see larger paychecks to stimulate the economy. If nothing is done, starting January 1st, the payroll tax will return to 6.2%, meaning smaller paychecks. Also, bonuses will be taxed at a higher rate and millions of Americans who are currently receiving extended unemployment benefits will see their checks stop coming. That is bad news for the economy because unemployment benefits are essentially stimulus spending since the government is giving that money to people who need it to buy food, clothes, and other necessities for their families.

Our economy has been recovering steadily for the past few quarters. The Congressional Budget Office predicts a shrinkage of GDP by .5% and an unemployment rate of 9.1% by the end of next year if we stay off the cliff.

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I am a sophomore at the University of Denver studying Film and English. I am deeply interested in Politics and the role of the U.S. in the world at large.

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