Friday, December 28, 2012

The fiscal cliff, what it is, and some possible solutions

            The fiscal cliff is sequestration and the expiration of the Bush tax cuts, along with other factors, happening at the same time. It starts to take effect in January and includes over 7 trillion dollars in spending cuts and tax increases over the next 10 years. Sequestration was created when a deal was not reached on the debt ceiling, so they extended it, but made the consequences of not reaching a deal the next time so horrible that both sides would want to reach a deal on the debt. It includes 1.2 trillion dollars in automatic cuts over the next 10 years, 55 billion dollars in cuts from the projected 2013 defense spending, and 55 billion in non-defense spending. The Bush tax cuts, which were extended two years ago, would also expire. This would mean income, dividend, estate  and capitol gains taxes would rise. Also less money would be given in the child tax credit, Payroll tax holiday and the American opportunity tax credit and Marriage penalty relief expire. Also more families will have to pay the ATM tax. There are other factors in the fiscal cliff, but it would be too time consuming to name them all. As I mentioned in another post, falling off the cliff is projected to shrink the economy by .5% in 2013 and increase the unemployment rate to 9.1%, according to a CBO report. This is a likely possibility, as Senate Majority Reid mentioned. 

          If we do not solve this problem we will most likely fall into another recession. With jobless 

claims at their lowest since March 2008, and 7.7% unemployment, falling over the cliff would destroy any chance of a recovery in the near future. What I think we should do is have a "grand bargain, in which significant progress is made to reduce the deficit. I believe that this bargain should include entitlement reform, negotiating drug prices, cutting defense spending, and tax reform. More, specifics can be seen in my other blog posts and a response to a comment in one of the blog posts. Another acceptable grand bargain would be similar to what the president is currently proposing. He has changed his offer from what he originally wanted. It includes some entitlement reforms, raising taxes for people making more than 400,000, some defense cuts, and tax increases. He will have to bargain more with republicans to reach a deal, but this seems like a good outline. The president has said that he is somewhat optimistic a deal will get done, but nobody will get everything that he wants. A worse solution would be a small scale solution that is a temporary fix. Some senators are predicting this will happen. However, the president has indicated he will not send a scaled back plan to congress. Although this will have temporarily fixed the problem, confidence in the U.S. will go down and the country will face a similar situation later.



1 comment:

  1. I am truly amazed at your knowledge of the system, and moreso, your ways to fix things. I have an 8th grader who can run his ipad like a champ, but ask about ANYTHING related to the deficit, and he gets a glazed look on his face!

    Thanks for such an informative post & site!

    Sandling All Day