Fiscal Cliff simply described in simple terms

By Kyle Quick

--Does mainstream media have your head spinning about the termed phrase, “Fiscal Cliff” or what it even means.  The most important thing to understand is regardless of what brilliant idea congress comes up with our country will not go bankrupt or fall off the face of the earth come Jan. 1, 2013.

Our intent is to help you have a better overall understanding about exactly what the “Fiscal Cliff” refers to by using plain English and letting you form your own opinion.

Ben Bernanke used the term “Fiscal Cliff” to describe the “massive fiscal cliff of large spending cuts and tax increases” that are likely to occur January 1, 2013 and mainstream media took the phrase and ran with it.

First, why has congress procrastinated on something they have known about all year long?

No one from either party has done anything because they were more concerned with being re-elected.  What is really sad, several members of both parties have already been quoted in mentioning the 2014 primaries.  There is no “I” in team but there are plenty in politician.

The Fiscal Cliff, in simple terms, is the result of the Budget Control Act of 2011, which is set to take effect January 1, 2013.

Budget Control Act of 2011 brief outline:

1. Ends last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers).

2. The “Bush tax cuts” are rolled back.

3. Beginning of taxes related to President Obama’s health care act.

4. There are also significant spending cuts that will occur.  According to Barron’s, over 1,000 government programs – including the defense budget and Medicare are set to see “deep automatic cuts”.

5. With the large cuts in Medicare, physicians’ services will be reduced by 27%
(Information obtained from the CBO)

How will you be affected? (Data was obtained from the CBO’s report on Nov. 8, 2012)

According to Politico and the CBO, if congress and the Obama administration does nothing the economy will shrink by 0.5 percent in 2013 and unemployment rate will sky rocket to 9.1 percent.

We hope this helps you understand the main topics being discussed.


An article written by Steven Sloan with Politico.com he mentions several recommendations made by the CBO.

The CBO said the outlook would be much more positive if Congress extended some or all of the expiring tax cuts and blocked the $109 billion in spending cuts slated next year for discretionary and mandatory programs.

If Congress blocked the spending cuts and extended all of the expiring tax cuts — except for the payroll tax break — the economy would grow by 2.25 percent next year. Adding the payroll tax cut and an extension of unemployment benefits would nudge the growth closer to 3 percent.

The report also demonstrates that extending all of the soon-to-end tax cuts would provide the biggest boost to the economy.

Continuing the breaks for all taxpayers would boost GDP by 1.5 percent. An extension just for families making less than $250,000 and individuals earning less than $200,000 — the level that Democrats are seeking — would expand the economy by 1.25 percent.