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What is the fiscal cliff?

Dec. 14, 2012

You’ve probably been hearing a lot about the “fiscal cliff” in the news lately with dire predictions about the effect on the U.S. economy if President Obama, the Republican majority in the U.S. House and Democratic majority in the Senate can’t resolve their budget differences.

So just what is the fiscal cliff? It refers to an estimated $560 billion in automatic tax increases and spending cuts scheduled to take effect on Jan. 1 to reduce the federal budget deficit. (The budget deficit is the nation’s annual shortfall, which is around $1.1 trillion. The U.S. debt is the budget shortfalls of all the years put together and stands at $16 trillion.) The effect of major tax increases and spending cuts occurring at the same time would be very damaging to the weak economy, many analysts say. Economic growth would decline as consumers and business slow their spending, and unemployment could rise above 9 percent, the Congressional Budget Office says.

First, let’s look at the tax increases and spending cuts. Big tax cuts passed in 2001 and 2003 will expire at the end of the year, meaning that nearly everyone who pays taxes will get a smaller paycheck. The across-the-board spending cuts of $100 billion would affect most military programs as well as domestic programs, such as Medicare.

How did we get to this point? It’s complicated, but the current situation is the partly the result of a 2011 compromise between Obama and Congress over raising the debt ceiling, which is the amount of money that that government can borrow from itself to pay its bills. The compromise, called the Budget Control Act of 2011, included major spending cuts that would take effect automatically if the president and Congress couldn’t agree on $1.2 trillion in savings by Jan. 1. It was supposed to force them to agree on a deal before the end of the year. They haven’t yet, and it’s going down to the wire to find a solution.

How can the fiscal cliff be avoided? The president and Congress have to agree on a budget policy. Both Democrats and Republicans want to reduce the deficit, but don’t agree on how to accomplish that goal. Republicans argue for government spending cuts without tax increases. Democrats want less drastic spending cuts combined with tax increases for the rich.

By the way, the term “fiscal cliff” was used by Federal Chairman Ben Bernanke when he testified before Congress in February 2012, warning that “on January 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases.” Others seized on the term to describe the dramatic consequences of what was coming.

What do you think?

Which proposal do you agree with? Is there room for compromise? Should both parties allow the automatic tax increases and spending cuts take effect? Should just some be canceled?
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Comments
2/6/2013
Harrisburg/ PA
Ana Englebright
Morris/ Central Dauphin High School
In the U.S. the fiscal cliff was the sharp decline in the budget deficit that almost occurred beginning in 2013 due to increased taxes and reduced spending as required by previously enacted laws. The American Tax payer Relief Act of 2012 was signed by President Barack Obama on January 2, 2013 and eliminated much of the tax side of the fiscal cliff, with the CBO projecting a 8.13% increase in revenue and 1.15% increase in spending for fiscal year of 2013. This Act resulted in a projected $157 billion decline in the 2013 deficit relative to 2012, rather than the $487 billion decrease projected under the fiscal cliff. This is what the Fiscal Cliff is.

2/6/2013
Harrisburg/PA
Danny B
Morris/Central Dauphin High School
I think that the fiscal cliff ressembles the deficit that America is in. The 17 or 16 trillion dollars that our country is in debt is hurting our reputation around the world and it is showing that we do not watch our spending. I feel that education should be our number 1 concern so that we can set up the future of our country in a good way so we can make it better. Have a good Day.

1/18/2013
Irving/ Tx
Eric I
Bradley/ Nimitz High School
I belive that the Republicans and Democrats should agree on something that the public agrees on, and not something they agree on. They are never going to get one hundred percent what they want. There is always room for compromise. They just need to drop their pride, and see what's best for America.

1/18/2013
Irving, TX
Bethany
Bradley/Nimitz
To reduce the federal debt, major changes have to be made. In such a large and diverse economy, there has to be programs and places that too much money is being given by the government. More money should be given to organizations and programs that will produce more jobs and revenue. The Democrat's plan to “tax the rich” seems great at first and harmless since they have an abundance of money. However, on second thought, it's not such a great plan. Most of the “rich” people in this country own or are high up in the business world. They control all of the large corporations that provide so many of America's jobs. If we take away a substantial amount of their salary, their investments will decrease, and more money will be taken away from their businesses, causing many of their employees to lose their jobs. Spending cuts are much better than raising taxes.

1/18/2013
Irving, TX
Bethany
Bradley/Nimitz
To reduce the federal debt, major changes have to be made. In such a large and diverse economy, there has to be programs and places that too much money is being given by the government. More money should be given to organizations and programs that will produce more jobs and revenue. The Democrat's plan to “tax the rich” seems great at first and harmless since they have an abundance of money. However, on second thought, it's not such a great plan. Most of the “rich” people in this country own or are high up in the business world. They control all of the large corporations that provide so many of America's jobs. If we take away a substantial amount of their salary, their investments will decrease, and more money will be taken away from their businesses, causing many of their employees to lose their jobs. Spending cuts are much better than raising taxes.

1/18/2013
Irving/Tx
Kristian B
Bradley/Nimitz
The proposals made sound more appealing together. With the Republican's want for government spending cuts and Democrat's want for tax increase on the rich seems to be a better proposal. There is room for compromise because each party can have their own parts of their proposals put together to fix the fiscal cliff. The parties shouldn't let the automatic tax increases and spending cuts take effect because the economy is already weak enough and the tax increases and spending cuts can cause America to crumble. The president and congress should definitely work out their differences.

1/17/2013
Irving/TX
Alex H.
Bradley/Nimitz
I believe that the automatic tax increase of $560 billion will not only further our unemployment rate, but it will also further our national debt, as more people will have less money to spend on goods. This will lead to less money flowing through the economy. The democratic approach to this problem seems the best, as increasing the taxes on the rich will provide more money to the economy, and we would be taxing people who have money to blow.

1/17/2013
Irving, TX
Daniela R
Bradley/Nimitz
Increasing taxes on the rich might seem like a good idea to the poor and the middle class, but what about to the rich class? Arguments like the fact that they worked hard to get their money could be said and violent outbursts ould take place if those increases went in. Unlike the Demorats view, the Republicans is a little more reasonable. Cutting federal spending could really help. Although drastic cuts would be detrimental to our society, minimal cuts could be beneficial. For example, cutting an immense amount of money for school programs could harm the chilcren but if a certain amount of money was saved for school programs that money could be divided equally to the schools.

1/16/2013
Irving/TX
Mayra Z
Bradley/Nimitz
Tax increases and spending cuts will only make everything worse. The results or after effects of these would be an increase of unemployment, along with more debt because our economy works in a way that the nation gets money and prosperity if people spend and this wont happen because if there are an increase of taxes it will decrease income which would lead to people wasting or spending less. I agree to the second proposal of finding other ways to fix the debt other than increasing taxes and spending cuts.This kind of plan should be cancelled, it will only make our economy worse.

1/16/2013
Irving, TX
Stephen Slaughter
Bradley/Nimitz
I agree with the Republicans decision on this. The government should have a budge cut because they already get good treatment for being in the office, they have a great salary especially since the length they can do that particular job of theirs. I'm not really for taxing the rich a whole lot more, the tax works for everyone the same, whatever their salary is, a certain percentage of money is taken. Technically about the same amount pf money could be taken from every class. But I do believe there is room to compromise, if both the republicans and democrats put there ideas together and do something with that.

1/16/2013
Irving/Texas
Omar R.
Bradley/Nimitz
Of course there is a possibility, it is just a matter of the actual action of compromising, both parties should probably allow the tax increases and spending cuts because in this economy we must take affirmative action that will take us back on track to a healthier economy. In my opinion, the proposal that will benefit us most in the end is the one I agree with. Though that is difficult to really decide.

1/15/2013
Irving/TX
Rose
Bradley/Nimitz
Yes there is a possibility to compromise, but will both parties be able to come up with an ideal compromise? Probably not. But the looks of it both parties have a very narrow and naive point of view meaning that they will not come to any agreement soon. And could possible allow the fiscal cliff to take place. Increasing taxes is not the way to fix the economy, yes you will get more money. But its the way the US manages money, and how the US spends money that will better the economy.

1/14/2013
Irving Texas
Jasmin T.
Bradley/Nimitz
Our U.S economy as we know is has slowly but surely approached the fiscal cliff, but the only problem no one has figured a way to fix it. I hate to say this but I know the Democratic Party is paying more attention to not having enough entitlement programs. Worrying about spending, we may be able to decrease the actual debt we are facing! On the other side of things the Republicans plan was to decrease spending and not to increase taxation on people with more money. Its hard, i'm sure for both parties to come together to find a solution to fix this fiscal cliff. If we don't find one soon, our economy may be going off a cliff!

1/14/2013
Irving/Texas
Carlos J.
Austin/JESA
I believe that both parties have to take part in this and try to find a solution to try and reduce the deficit. Raising taxes will not be a good idea due to the fact that lower class citizens do not earn the same amount as the wealthier citizens, and if you ask me who should be taxed more it should be the wealthy because they have money to spare and it would be unfair to tax the lower class citizens. It would be nice if Democrats and Republicans can compromise and find a solution to this situation.

1/14/2013
Irving, TX
Kasey
Austin/JESA
In reality both parties need to come up with a compromise to create a solution that works for the better of everyone. Personal benefits and beliefs should be pushed aside in order to fix this monetary issue. Perhaps the really wealthy could be taxed more to help so that the not so wealthy do not have to suffer. And if the government were to spend less, that could be helpful.

1/11/2013
Sidney, MT
Marcos
Mr. Faulhaber/Sidney High School
I agree with the Rebublicans because the government does over spend. I also agree with the tax cuts because if people make more it would help strengthen the economy because there would be more money for the consumers.

1/10/2013
Irving/Texas
Priyank
Austin/ JESA
I think both the Democrats and Republicans need to work together to find a solution to the problem, and put their differences aside. Raising taxes and reducing government spending would both help. In the end, there's one goal to be accomplish, and that is to reduce the deficit. Whatever needs to be done, needs to be done. Both parties need to compromise and find a solution.

1/9/2013
Montgomery/TX
Devon T.
Metzger/Montgomery
I feel that the fiscal cliff should not have been avoided and that our Government needs to set differences aside between the democrats and the Republicans to find the right solution for our economy to lower the debt. I would say i agree with the Republicans proposition of decreased spending not tax increase. But if their were to be a tax increase i woud say tax the rich more signifigantly tha the middle and lower class.

1/9/2013
montomgery, tx
Johnny
mr. metzger/montgomery high school
the republicans and democrats need to work together in order to get this whole situation under control. yes they need to cut government spending and stop using the money that isnt even ours, we have to borrow the money and thats what causing us to be in even more debt. raising the taxes on rich is a good idea, but that will do little or nothing when it comes to gettting out of debt. working together is the key, and they need to stop posponing it and focusing on this alot more.

1/7/2013
Irving, TX
Daniela
Austin/JESA
I think that if anyone has to be taxed more, it should be the wealthier people. They make more money than anyone else, therefore they will be more capable of paying the higher taxes. So I agree with the Democrats in that point. But also, the Republicans make a good point on having cuts for government spending. I believe that if both parties can agree in that combination it will become a good solution to the problem.

1/7/2013
Irving/Texas
Angel
Austin/JESA
I think that the republicans and democrats need to work together in order to find a solution for this problem. The republicans are right on the aspect of cutting government spending since spending money you don't have causes debts. It is okay to have an increase in taxes on the rich, but don't make the increase to big since it can result in a huge uproar. In the end of the day it is up to whatever congress wants to do and what they see is best for the economy.

1/7/2013
Irving, TX
Adaline Khamvongsouk
Austin/JESA
I believe that with the opposing opinions of both parties going to head to head about this issue, should be set aside and focus more on the situation in hand rather than their differences. The conclusion of the fiscal cliff will effect the public in a huge substantial way, and not their opinions or beliefs. They need to compromise soon and take advantage of the fact that the public voted for these politicians for a reason, and not for causing such a debacle about this situation. This could be prevented and if our politicians were less polarized and got past their individual opinions they can ultimately work together to improve our nation at its worst right now.

1/7/2013
Irving, Tx
Sabrina
Austin/JESA
A compromise between the two parties is what is called for here, anything but would disregard the best interests of the American people that Congress is obligated to serve. Both government spending cuts AND tax increases are called for. Tax increases on the upper-crust of American society does seem like a reasonable idea, however in the name of fairness many are calling for these tax increases to be inclusive of not only the wealthy, but also the middle class. A flat tax may be a feasible solution to this particular deadlock.

1/7/2013
Irving/TX
Ricky
Austin/JESA
I will agree more with the Democratic point of view. Where they want less drastic spending cuts combined with tax increases. However i do not think their is any room for a compromise, is either one or the other. I'm not saying that is impossible to come to an agreement however both party's have to work together in order to come up with something that will be productive as a whole. Also to the fact that they want the tax increases and spending cuts to take effect right away is going to be real hard and impact every single person on the country.

1/7/2013
Irving/Tx
Rafael
Austin/JESA
There is always room for compromise! People need to stop worrying about what they can benefit out of the problem and start coming to the same page and start figuring out, how to solve the problem. Maybe the rich do need to be taxed a bit more then they have been before but at the same time it wouldn't be right to take away money from people that have worked so hard for it. Some of the government programs could also be cut, especially the ones that don't produce something out of it. There is always a solution to a problem we just can't keep going back to the same conclusion, over and over again, we have to look at it at a different point of view than most Democrats and Republicans.

1/6/2013
Montgomery, Texas
Ryan
Montgomery high school
I think that the budget can be balanced so that the VERY wealthy can be taxed more than the not so wealthy and that some of the government programs can be cut. We cannot keep spending so that the government keeps putting our country in more and more debt and it gets so bad (eventually) that it cannot be paid off at all. Another idea is that there could be a flat tax so that it would be more equal for everybody and so that the economy can recover at a steady rate.

1/4/2013
Irving/Tx
Jennifer T.
Bradley/Nimitz
The truth of the matter is that both parties must come to an agreement for their sake and the country as a whole. Spending cuts and budgets leave a lot of room for differences, but we cannot go over the fiscal cliff so a compromise is in place. Politicians are so stubborn and self-centered they are only focusing on their opinions and solutions, and not on the problem as a whole. The republicans seem to be the ones focusing on the issue and a solution. The democrats should go on board the ship, as they are “for the people”, but lately they seem to care about themselves more.

1/4/2013
Irving/Tx
Jennifer T.
Bradley/Nimitz
The truth of the matter is that both parties must come to an agreement for their sake and the country as a whole. Spending cuts and budgets leave a lot of room for differences, but we cannot go over the fiscal cliff so a compromise is in place. Politicians are so stubborn and self-centered they are only focusing on their opinions and solutions, and not on the problem as a whole. The republicans seem to be the ones focusing on the issue and a solution. The democrats should go on board the ship, as they are “for the people”, but lately they seem to care about themselves more.

1/3/2013
Montgomery, Texas
Julia
Mr. Metzger/Montgomery High School
The U.S. economy has quickly approached the fiscal cliff, yet they have not found a quick solution. The Democratic Party is more worried about running out of entitlement programs if spending were to be descreased than the actual debt the nation is facing. The Republicans' proposal to decrease spending and not to increase taxation on the wealthy will actually decrease debt more effectively. The fiscal cliff is not meant to dive off of, therefore the Republican and Democratic parties need to put differences aside and seek a solution that best benefits both sides of the political aisle.

1/3/2013
Montgomery, Texas
Freddy B.
Mr. Metzger/Montgomery High School
The fiscal cliff can only be avoided fairly with budget cuts. While many people may believe the rich should stand up and surrender their money to help pay this debt, they are forgetting that the majority of the upper class worked their way through life to earn that fortune. It is their money, therefore their right to choose where to spend it. Also, budget cuts sound bad, but in reality any business that is truly doing the public any good can easily survive privately. With the loss of subsidies companies benefiting from these subsidies will raise their prices to cover their average total cost. With this raise in price our economy would experience a shift in demand. Once supply is shifted, the economy would very quickly balance itself out with a shift along a constant supply curve. Simply, the prices would go up, but this will make people reconsider how much they need a product, and how much they are willing to pay for it. People realizing that they do not need a product will not buy it. Then, less people buying the product, the company will produce less of it. Now, some things you may argue people need. Medicare, social security, all of these seem like they absolutely need the government’s subsidy, however in reality they could survive privately. And of course people are forgetting of the fact that there are many charities that are willing to help, and should taxes decrease, I am sure people would be more apt to donate. So with a plan is bound to work, and several reassuring facts, I believe that budget cuts are the only fair way to solve this crisis. Is it really okay to take another person’s money just so you can save up enough money for that new iPad, smartphone, or other luxury item you don’t really need?

12/28/2012
Montgomery, Texas
Alex M.
Mr. Metzger/Montgomery High School
In my opinion, I believe there IS room for compromise but their shouldn't be any. Our country should have a simple flat tax rate no matter who you are and shut down federal spending or agenicies we don't need! Milking more money from the 47% of citizens isn't going to help our deficiate much. The spending is the problem, not the amount of taxing.

12/22/2012
Irving/Tx
Marisol
Bradley/ Nimitz
The Republican's proposal seems more reasonable and appropriate for this situation. Although the Democrats want to raise taxes for the rich, there should be no more spending. We want to fix the problem right away, not have a problem for the problem. If the Republicans are proposing government spending cuts without having to involve any more money than the one already involved, then why not side with this plan? It just makes more sense. If these two parties can't compromise, then new proposals should be engendered. If both parties synthesized the two proposals, added more to them, and took out parts that won't work then a great compromise could be created. What ever it takes, it needs to be done before this mess turns in to a bigger mess. This automatic tax increase and spending cuts problem needs to be resolved before it happens, because then there will be more to fix.

12/22/2012
Irving/TX
Mayra Z
Bradley/Nimitz
The truth is that they are not going to fix anything with. The new planbeing proposed. The truth is thta its going to have A negative effect causing people to get angry due to the tax increases which would most likely end in less consumer spending which may end up cAuSing businesses to close and have not much product consumption.

12/20/2012
Irving/Tx
Vanessa C.
Bradley/Nimitz
I agree with the Republicans. Both Republicans and Democrats need to make agreement NOW. There should be a definite spending cuts . There is room for compromise is just that both party’s need to stop there selfishness and come to a agreement for the better of our country. Both Republicans and Democrats need to show us what they can do for our country .

12/20/2012
Washington, NJ
Tom
Mrs. Rokosny
The fact of the matter is that politicians in the United States are not doing their jobs. The attention seeking antics in congress have gone far enough. These people should be doing what they were elected to do: their jobs. Republican or Democrat, both parties are refusing to compromise, and politics run on compromise. It doesn't matter who you are; if you are in a public office, you are there to serve the people, not yourself.

12/20/2012
NJ
Toby L.
School
Well uh, what can I say, we about to dive off this cliff. I not aint going to hide somwhere while the Dems and the Reps battle it out. Deuces!

12/20/2012
New Jersey
Faith
Rokosny
Both parties, Republicans and Democrats, need to put their differences aside for just a moment and actually consider what is in the best interest for the American PUBLIC, not their reputations or their beliefs. Both parties need to come to a compromise - and soon! The American public elected these politicians into office to actually do something, not sit around eating bonbons. They are grown adults who are acting like children, refusing to settle on a policy that will help the US economy. While I believe that we do need to cut spending, and stop increasing taxes there is no time to act like stubborn mules. This is a time for both parties to come together and show that the public that when they casted their votes, they voted for someone with the ability to see the importance of compromising and is able to do their job.

12/20/2012
Washington, NJ
Nancy
Warren Hills High School
This tug of war between the two major parties in congress is the result of stubborn politicians desperately clinging to their own insignificant opinions. The purpose of organized government is not to create unnecessary tension and inhibit political progress. This sort of deal is unnecessary and could be prevented. If only Congress were less polarized and their members got past their petty opinions and tried to work together to improve our battered nation.

12/20/2012
New Jersey
Sarah
Roko
I dont understand how if the country is so far in debt to itself, where we would continue to get more money from if you dont have any more to spend?

12/20/2012
Washington, New Jersey
Louis
Rokosny, Warren Hills High School
If one part of our society needs to cut back on spending, then everybody should have to. It seems pretty unfair to me that the government wants its citizens to put out their own money so that they can just spend as much as they want supplying and supporting ridiculous organizations such as Planned Parenthood. The Democrats claim to be so "people's rights" oriented, yet they just want the people to get taxed even more to pay back all the debt. They are hypocrites. #democratsexposed

12/20/2012
New Jersey
gertrude
Warren Hills
I like this article. Republicans and Democrats definitely need to work together better. spending cuts need to instated more.

12/17/2012
Irving/ TX
Sandra C.
Bradley/ Nimitz
I agree with the Republicans and of course there is room for compromise. There should be definitely be spending cuts and they should not be taken lightly. The government shouldn't raise taxes simply because they don't want to cut back on their spending. It seems that the Democrats are being selfish and not taking citizens into consideration.

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