Before & After The Fiscal Cliff

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Others credit Federal Reserve Chairman Ben Bernanke for taking the phrase mainstream in his remarks in front of Congress. Still, others credit Safir Ahmed, a reporter for the St. Louis Post-Dispatch , who, in , wrote a story detailing the state's education funding and used the term "fiscal cliff. If Congress and President Obama did not act to avert this perfect storm of legislative changes, America would have, in the media's terms, "fall over the cliff. Many itemized deductions were subject to phase-out, and popular tax credits like the earned income credit , child tax credit , and American opportunity credits were to be reduced.

Your marginal tax rate is the tax you pay on each additional dollar of income you earn. As your income rises, your marginal tax rate better known as your tax bracket rises. In addition, the Congressional Budget Office estimated that 3. The October unemployment rate of 7. The Congressional Budget Office believed that up to 3.

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This could have resulted in an increasing unemployment rate up to 9. Bush in and These included a lower tax rate and a reduction in dividend and capital gains taxes as the largest components. These were set to expire at the end of and represented the largest part of the fiscal cliff.

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The potential expiration of the Bush-era tax cuts also affected tax rates on investments. This not only would have affected Wall Street investors, but also retirees and retail investors , who were withdrawing funds from qualified retirement plans and brokerage accounts. In , Congress approved a temporary reduction in the Social Security payroll tax.

However, that may not have been the end of the impact of the fiscal cliff on Social Security. Social Security has a lot of moving parts, and lawmakers from both sides of the aisle believed that making changes to Social Security, in addition to the lapse of the payroll tax cut, could raise much-needed revenue. There were principally two bullish arguments regarding the fiscal cliff.

First, that the Congress won't allow it to happen, and second, that maybe it wouldn't be so bad if it did happen. Taking a very different track, there was also an argument that the cliff itself would be a long-term positive. Few argue that the U. Although the short-term impact could be severe recession in , the bullish argument would hold that the long-term gains lower deficits, lower debt, better growth prospects, etc.

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That would all be welcome news, but in order to get there, the nation would face almost certain financial turmoil. Lawmakers met at the White House over this issue. Both sides called the meeting productive, but neither side indicated that a deal was imminent. Democrats wanted to see more revenue tax increases , especially from the nation's wealthy, as part of any deal. Republicans favored more spending cuts, especially to entitlements like Medicare. They actually agree on a lot.

The U.S. Economy After the Fiscal Cliff

Neither side favors the sequester, an expanded alternative minimum tax or Medicare cuts for doctors; the issue in preventing those outcomes is where to find offsetting savings to avoid adding to annual deficits. Their main disagreement is a familiar one: the Bush rates on income above that, for the top 2 percent of taxpayers. Obama campaigned against the rates in and in In December , when the Bush tax cuts originally were to expire, Mr.

This time, he swears, is different. The economy was weaker in , and so was Mr. Republicans had just triumphed in the midterm elections, taking control of the House. Now Mr. Obama is fresh off re-election, and Congressional Democrats have gained seats. He vows that he will not allow the top tax rate to stay at 35 percent; a return to Chastened Republicans have suggested they would support higher revenues, but only from limiting tax deductions for high-income taxpayers, not from higher rates.

Obama has not ruled out a compromise that would limit deductions as well as setting the top rate above 35 percent but below What now? Might they really reach an impasse?

The Fiscal Cliff Crisis and the Real Economic Crisis in the United States | Intereconomics

No one knows. Despite market jitters about that outcome, Democrats suggest that they are willing to let Jan. That could simply be bravado, to make Republicans blink.

Is there a best-case outcome here? Many budget experts and economists are hoping for a two-part deal. The first part would extend many of the tax cuts and repeal the automatic spending cuts to avert the changes scheduled after Jan. But it would be contingent on the second part: a framework for reducing projected long-term deficits by overhauling both the tax code — to raise revenues — and entitlement programs — chiefly Medicare and Medicaid , whose rising costs in an aging population are unsustainable.

Those overhauls would preoccupy Mr.

The fiscal cliff is a man-made disaster waiting to happen.

Obama and Congress through and perhaps If they failed to do so, presumably other automatic changes might be in store as an enforcement action — setting up yet another looming deadline. Tell us what you think. Please upgrade your browser. See next articles. Newsletter Sign Up Continue reading the main story Please verify you're not a robot by clicking the box. Invalid email address. Please re-enter.

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