Was the Mayan Apocalypse predicting the “Fiscal Cliff” all along? Either way, there’s been a lot of head scratching these past few days since the latest buzz word on the street has emerged as something that we should be worried about.
But what exactly is this “fiscal cliff” and why is everyone talking about it?
A definition found on cfr.org put it this way: "The "fiscal cliff" is a term used to describe a bundle of momentous U.S. federal tax increases and spending cuts that are due to take effect at the end of 2012 and early 2013. In total, the measures are set to automatically slash the federal budget deficit by $503 billion."
The problem is that such an abrupt change to the budget in this fragile economy may bring about a second recession and cause unemployment to rise in 2013. So "going over the cliff" refers to falling back into recession, double-dipping if you will.
President Obama and House of Representatives Speaker John Boehner have been in talks to come to an agreement on how to deal with this issue. Their efforts are designed to stop the steep tax hikes and across-the-board spending cuts from going into effect at the end of December. Does this mean no tax return for 2012?
Well, the two sides are now significantly closer to agreeing on critical issues such as cuts to Social Security benefits and tax hikes for the wealthy. Obama has managed to reduce the original tax rates that President George W. Bush had in place. Both Obama and Boehner have agreed to keep the rates low for everyone except the wealthy, but they cannot agree who qualifies as "wealthy". Obama's definition included taxpayers making more than $250,000 per year, but he's compromised up to $400,000 since Boehner was thinking of a figure closer to the $1 million mark. It is speculated that he may lower that to $500,000.
Obama has also offered a "fast track" process for major tax and spending reforms that would make permanent changes in the tax code as early as January 2013, and some not until 2014. However, a cliff-avoiding agreement would no doubt bring about more targeted spending cuts in other areas. There are potential plans floating around that may cut spending for Medicare and Medicaid, but it has yet to be discussed.
We will have to wait to see what kind of deal is reached regarding the fiscal cliff. Apparently most of America has no idea what it is, but now you do! While we wait for more news from Washington, enjoy this funny video from "Jimmy Kimmel Live" about the Fiscal Cliff.
