Have You Heard About the “Fiscal Cliff”?

Those of us sad people who spend all of their time engrossed in the everyday political minutiae are all too familiar with the coming “fiscal cliff.” But even those familiar with the coming “cliff” sometimes get the facts wrong. I’ve heard many pundits say the “cliff” is just the expiration of the current tax rates (i.e. – the “Bush tax rates”) in January 2013.

According to the Associated Press, most economists fear that a combination of higher income taxes on virtually everyone and a simultaneous big drop in government spending would plunge a still fragile economy back into recession.

The truth of the matter is that the true extent of the “fiscal cliff” is much worse. It is a number of serious threats to our nation’s economy all coming to roost at the same time. It isn’t just one item — it is at least three big, BIG ones.

  • Sequestration  – click here for a good rundown of the issue.
  • Expiration of Bush Tax Cuts
  • Stagnation of economic growth, Double-Dip Recession or worse 2008-type collapse.

In brief, sequestration — automatic cuts scheduled to hit in January — would impact the Defense Department dramatically and lead to over one million layoffs of workers in and out of the Pentagon, including civilian contractors. Those layoffs would begin in January. Other significant cuts are set to hit domestic spending, including Medicare the program. Social Security, Medicaid, supplemental security income, refundable tax credits, the children’s health insurance program, the food stamp program and veterans’ benefits are the few programs exempt from this across the board Federal spending cut.

At the same time — January 2013 — the 2001 tax rates expire if Congress and the President don’t agree. That means higher across the board tax rates for everyone, especially small businesses.

In this video, Douglas Holtz-Eakin, the former director of the Congressional Budget Office further explains the fiscal cliff and how Congress and the administration could avoid it.


  1. For government spending to be cut is economically good. It will help release resources back to the private sector (which uses them more efficiently). And it will also help with the *real* fiscal cliff that is coming: namely, the U.S. sovereign debt crisis – when the world realizes that we can’t pay our $16 trillion debt, except in newly printed funny-money from Uncle Ben.

    The MSM, neo-Keynesian economists and government employees will all tell you the opposite, of course. And loudly. Just don’t listen to them. They’re wrong.

    So, spending cuts good – except for the question of *what* is being cut. I agree that cutting defense is probably bad here and what we need to do instead, is cut the growth of the entitlement programs.

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