5:41 PM EST, November 27, 2012
You've heard plenty about the fiscal cliff, but what does it all mean?
The first thing that economists we spoke with said that "cliff" is a bad term. Slope would be the way to go. Everything that could happen as a result of a deal not being reached would be gradual.
But first, how did we get here? The two main reasons are the expiration of the Bush tax cuts and the United States reaching its borrowing limit. The tax cuts expire in early 2013 and the United States is expected to reach its debt limit around the same time.
Last summer, the debt ceiling was a big issue. Eventually a deal was reached, but only after $1.2 trillion in cuts and raising the debt ceiling. Another part of that compromise was this fiscal cliff, which forced the issue of making Congress do something more drastic to control spending.
That compromise, the Budget Control Act of 2011, stipulated if the government doesn't create a long-term economic plan regarding spending then taxes would automatically increase and there would be drastic cuts to government spending.
But why is "cliff" not the best term? Everything would be more gradual. Generally speaking, Americans would see a 5% increase in taxes, unemployment would rise to at least 9%, according to the Congressional Budget Office. These would all be measures aimed at cutting the deficit, which "falling off the fiscal cliff" would do.
One economist says Americans should hope that something gets done. He said "falling off the fiscal cliff" would be worse than "kicking the can down the road."
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