The Fiscal Cliff 101

This may not be a part of economic basics, but it is of extraordinary importance. If you have been living under a rock then you may not have heard of this possible calamity that may occur in less than a week. The Fiscal Cliff, if not stopped, will destroy our economy in an effort to lower our massive deficit. It is something that everyone must know about, and so that is why I am making a post about it.

In 2000, America had a large surplus where America was making much more money than it spent every year. President Bush wanted to use this surplus to implement more than one trillion dollars in tax cuts to the American people until December 31, 2010. By 2010, Obama was president, and he hated the Bush tax cut, but he did not want to increase taxes to the middle class, so he extended them, along with a few other programs, to the end of 2012. Meanwhile, a super committee was tasked with finding 1.2 trillion dollars in deficit reduction, and if they failed to do so, the 1.2 trillion dollars would automatically be cut from government spending starting on January 1st, 2013. As you can tell, they failed to do so. President Obama and John Boehner, Speaker of the House, have worked tirelessly in an effort to agree on a solution to prevent the cliff from hitting, but they cannot seem to agree. Obama wants to raise taxes for the top two percent of taxpayers and will allow some spending cuts, while Boehner wants to mainly cut wasteful government spending and try not to raise any taxes. Boehner, however, did say he would allow a tax increase to individuals making more than one million dollars, and this would almost cover half the needed deficit reduction.

The Fiscal Cliff will not be entirely bad; the massive spending cuts will drop the deficit by a significant amount, sending us closer to the surplus we miss. Unfortunately, however, these cuts will occur in every corner of government spending, and will cause large tax increases in every class, and programs like Medicare will have reduced funding. Unemployment will also increase sharply as a result of the cliff. Additionally, another recession will ravage the nation. I urge you all to research the Fiscal Cliff more, as it will be a very important event in the economic course of the country, and will effect every citizen.

Sources:

http://www.washingtonpost.com/blogs/wonkblog/wp/2012/12/17/the-fiscal-cliff-in-graphs-and-gifs/
http://en.wikipedia.org/wiki/United_States_fiscal_cliff#Effects_of_tax_increases
http://www.nytimes.com/2012/11/16/us/politics/the-fiscal-cliff-explained.html?pagewanted=all&_r=0