What is the ‘Fiscal Cliff’ Really?

Contrary to what the government and the media would like you to believe, it’s not really the end of the world.

When you hear the term ‘fiscal cliff’ what image pops into your head? Personally, over the last few weeks and even months the term fiscal cliff has conjured images of masses of people literally spilling over the side of a cliff. It’s an upsetting image, and probably not realistic. So I decided earlier this week to try to figure out what exactly this fiscal cliff is, and hopefully excise the images that term brings to my mind.

After reading multiple definitions, news reports, op-eds, and basically overwhelming myself with terms like ‘debt ceiling,’ and ‘budget control,’ this is what I have managed to figure out. First and foremost, the ‘fiscal cliff’ is NOT, I repeat NOT the end of the world. Although there seem to be plenty of people on both sides of the debate who would like you to believe otherwise. What it is though is the end to the Bush tax cuts from 2001 and 2003 and a series of new laws concerning both taxes and government spending stemming from the Budget Control Act of 2011 which Congress signed last year and is scheduled to take effect at midnight on December, 31, 2012. According to Thomas Kenny the resident expert at Ask.com,

Among the laws set to change … [A]re the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite … and the beginning of taxes related to President Obama’s health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect.

Well that seems clear enough, but what happens if Congress isn’t able to come to an agreement and we all plunge over said cliff? Two things actually, the first is that the U.S. will more than likely go into another recession, which is never good, but we have survived those before, right? Second, both the short and medium-term deficit problems we have now in the US would vanish. It has been projected that under current law, debt held by the public will fall to less than 60 percent of GDP by 2022. However, that debt is projected to climb to 90 percent if the current policies we have in place continue.

So, we can either extend the tax cuts and policies that have played a major part in getting the U.S. into the financial mess it’s in now, or we can go ahead and go over the cliff.  Although it’s scary, and means we will have to pay more in taxes and have less money in our pockets, our country will, hopefully begin to climb out of the giant pit of debt we are in right now. Think instant gratification that will hurt more in the long run, or learning to live on a tighter budget for a while but more permanently fixing the financial crisis long term.


Photo: DonkeyHotey/Flickr

About Kathryn DeHoyos

Kathryn DeHoyos currently resides on the outskirts of Austin, TX. She has 2 beautiful children, and is very happily un-married to her life partner DJ.


  1. What happen to the “super pack?”

  2. Yet the Congress is getting a pay raise. Although minimal, it’s still a raise. Aren’t raises based upon performance? 18% approval rating by those who pay their salary (tax payers) says to me, they deserve no raise.

  3. You’ve forgot the other ‘half’ of ‘the cliff’. Spending cuts! If what I’ve read is accurate, it would be somewhere around 8% across the board (more for the military). Now, many say that’s a good thing. That we’ve become too dependant on ‘entitlements’ and they may be somewhat right. However, I don’t think most people realize that it’s not only people on a direct assistance sort of program who’s daily life is affected by government spending. The roads and bridges you travel.The electric grid and gas pipelines you depend on for energy to your homes. Various projects and services in your local community. These are also funded, at least partically by the Federal government. Look, all I’m saying is thatit’s going to be real interesting come Jan. 1 when people see, not only a bigger tax bill, but how across the board spending cuts affect their lives. Think of it as the ‘Double Whammy’, you pay more and get less!

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