Fiscal Cliff

Fiscal Cliff – name coined by Ben Bernanke, Federal Reserve Chairman

Congressional Budget Office Projections

The CBO projects a Federal deficit equal to about 2 percent of the GDP - Gross Domestic Product - if the measure known as the Fiscal Cliff goes into effect.  If the measure is rescinded and no new tax revenue or entitlement cuts are implemented then the deficit rises to over 6 percent of the national GDP.

Fiscal Cliff

• a combination of spending cuts and tax increases to lower the Federal deficit
• 2013 Spending cuts:
• $87 billion across the board cuts in Domestic, Defense and Discretionary spending
• $35 billion saved – end extended unemployment benefits
• $11 billion saved – reduce Medicare doctor rates by 27 percent
• 2013 Tax increases:
• $532 billion additional revenue for 2013 resulting from:
• all Bush-era tax reductions end
• additional business and individual tax cuts expire
• 2 percent payroll tax cut ends
• 28 million Americans required to pay a minimum tax for 2012
• Tax increases take effect January 1, 2013
• $668 billion dollars in total combined spending cuts and tax increases
• $668 billion equals 4% of GDP – Gross Domestic Product
• Fiscal Cliff measures will likely result in:
• pushing the US economy back into recession
• raising the unemployment rate to around 9%
• These measures were mandated in the August 2011 budget deal made with Congress in order to end the standoff over raising the nation’s debt limit.

These Fiscal Cliff remedies can be avoided if Congress and the White House can agree on legislation before January 1, 2013 that would reduce the Federal deficit by $1.2 trillion dollars over a 10 year period. 

A number of Republicans oppose any tax rate increases because

·        tax increases would slow the economic recover

·        focus should be on cutting costly Federal entitlement programs

Many Democrats insist on tax increases for the wealthiest 2% because

• closing specific high income tax deductions won’t provide enough revenue
• focusing on entitlement cuts places an unfair burden on the middle class

A number of Congressional legislators are working actively behind the scene in order to arrive at a bi-partisan agreement that would forestall implementing the Fiscal Cliff.  These include Senators known as the Gang of Eight:

• Michael Bennet – Colorado, Democrat
• Saxby Chambliss – Georgia, Republican
• Tom Coburn – Oklahoma, Republican
• Kent Conrad – North Dakota, Democrat          Retiring 2013
• Mike Crapo – Idaho, Republican
• Dick Durbin – Illinois, Democrat
• Mike Johanns – Nebraska, Republican
• Mark Warner – Virginia, Democrat