Fiscal Cliff
Skyrocketing debt has caused the United States to draw ever nearer to the looming presence of a fiscal cliff, and should the government not control spending the results could be disasterous. Courtesy of Lauren Monahan ‘ 16 Multi Media Design Class
The start of a new year marks a time of new beginnings and resolutions. Gym memberships are purchased and calendars are replaced as the world ties a bow on the old year and moves on to the new one. However, in the final days of 2012, the United States did not peacefully move on, but instead approached the new year on a worrying cliffhanger- literally.
The impending “fiscal cliff” prompted doomsday discussions and warnings of economic disaster reminiscent of the recession the United States experienced in 2008. The term refers to a bundle of spending cuts and federal tax increases meant to quell the momentous debt the United States has accrued in the last two decades. After weeks of debate, a “resolution” for the fiscal cliff was reached on New Year’s Eve, right under the wire.
According to abcnews.com, this debt has now exceeded an unprecedented 15 trillion dollars. The debt ceiling is currently capped at 16.39 trillion, a point that economists predict the United States will soon reach. With Fitch, a credit ratings agency, threatening to downgrade the United States from its prime AAA rating if an agreement could not be reached, it was vital that the federal government take the issue head on.
Provisions of the fiscal cliff include both tax increases and budget cuts, but in the midst of Washington’s highly partisan atmosphere, enough never seems to be enough. Democrats were unwilling to cut federal programs, and Republicans stood firmly against tax hikes. In fact, it is this turbulent two party atmosphere that many have attributed to the severity of the fiscal cliff.
“The fiscal cliff is in many ways the culmination of a series of increasingly contentious fiscal showdowns between the Democratic and Republican parties over the last few years. The most noteworthy, the debt-ceiling fight of August 2011, threatened the country’s ability to meet its financial obligations and resulted in an unprecedented downgrade in the U.S. credit rating by Standard and Poor’s,” Online Contributor to the Council on Foreign Relations Jonathon Masters wrote. “Most critics believe that the lack of a comprehensive, long-term deal on deficit reduction—one that addresses the need for major tax and entitlement reform—has propelled the use of short-term political expedients.”
This bipartisan bickering came to a head in the fiscal cliff’s largest component up for debate, the Bush Era tax cuts, most of which were kept in place.
“The President has put a balanced, reasonable proposal on the table that achieves significant deficit reduction and reflects real compromise by meeting the Republicans halfway on revenue and more than halfway on spending from where each side started,” White House Press Secretary Jay Carney wrote in a December 18 statement.
“We have moved dramatically, while they have barely budged,” said Glenn Kessler about the GOP perspective in a December 19 Washington Post article.
Behind closed doors, Democrats and Republicans struggled to come to an agreement. Ultimately, the final deal included higher taxes on citizens with higher income brackets, an expiration of the payroll tax, and a larger tax benefit for charitable donations. While the United States has avoided economic collapse for now, there are problems yet to come.
“It’s already here today. It’s killing our economy. It’s causing investors to sit on their cash. They’re afraid to invest. It’s a wet blanket on top of our economy,” Speaker of the House John Boehner said, when asked when the country would start feeling the effects of the debt in a January 7 interview for the Wall Street Journal.
Congress will need to pass another deal in March, now being referred to as a second fiscal cliff, which proposes such provisions as defense cuts and additional restrictions in government spending.
“A result of the fiscal cliff will be that everyone’s personal income taxes will increase. Also sequestering will occur, meaning that large spending cuts are set to begin if the fiscal cliff is not dealt with,” junior Economics co-head Stephanie Mellert said. “These large spending cuts will lower defense contracts, discretionary income, medicare payments, and unemployment which will therefore hurt jobs and our economy as a whole.”
The United States rushed into the new year just barely avoiding the doom of the fiscal cliff. Only time will tell whether the nation will be able to maintain its resolution of avoiding debt doom.
– Nora Henrie, Copy Editor
