Where we’re at?
These days, one hears a lot of talk about “the fiscal cliff.” Between this “cliff” and the “debt ceiling,” economists and policymakers have our metaphors so mixed that it’s hard to tell what’s what anymore. One minute we’re hurdling into a canyon off a steep ledge a la Wile E. Coyote — the next, our heads are crashing through the ceiling! Earlier in April New York Times columnist David Leonhardt tried to popularize an awkward neologism of his own making, “TaxMageddon.” I think we can all be glad this unwieldy portmanteau never caught on.
Let’s try to cut through all the jargon, though. In the first part of this series, we’ll ask: What is this strange thing called the fiscal cliff, anyway? A second installment will try to address the question: How might it affect you?
Here we go. First, it’s never a bad idea to hear the word straight from the horse’s mouth. The guy who coined this now-ubiquitous phrase turns out to be none other than Federal Reserve Chairman Ben Bernanke. He’s a pretty big deal around Washington, D.C., so chances are you’ve heard of him. Bernanke understands the “fiscal cliff” as
the many major fiscal events that could happen simultaneously at the close of 2012 and the dawning of 2013. These events include the expiration of the Bush era tax cuts, the payroll tax cut and other important tax-relief provisions. They also include the first installment of the $1.2 trillion across-the-board cuts in domestic spending and defense programs required under last summer’s deficit reduction agreement. At the same time, lawmakers may have to raise the debt ceiling once again, potentially triggering another standoff in Congress.
In laymen’s terms, what this amounts to is the following: a whole array of pretty major financial events are set to happen in the not-so-distant future, any combination of which could prove disastrous to the US economy. Should Murphy’s Law (“Anything that can go wrong will”) turn out to be true, we’re in for a bumpy road ahead. Some of this is out of lawmakers’ hands, it’s true. But if the US legislature doesn’t get its act together soon — and by soon I mean January 1, 2013 — then this cluster of attendant consequences will be something we all have to face.
Congress, whose approval rating has been fluctuating between 9-11% for what seems like years, is currently at a deadlock as to how to proceed. Neither party really comes out of this looking good. If we’re headed toward a “fiscal cliff,” then the Republicans and Democrats are like Thelma and Louise from the eponymous 1991 film Thelma and Louise — they’re in this together: hand-in-hand, pedal-to-the-metal and full speed ahead.
What happens if we go off this dreaded cliff? Well, for starters, there will be automatic budget cuts (this is a bit of a simplification, but something the Democrats don’t want) and tax increases (again, something the Republicans generally don’t want). That’s right, a double-whammy. The economy will likely go into a nosedive, the stock market will take a plunge, and we’ll all come out the worse for wear in the end.