Fiscal Cliff

The fiscal cliff refers to expiration of tax cuts and spending cuts as part of the Budget Control Act of 2011.  This act did three things: raised the debt ceiling the US Federal Government, created a “super committee” to cut $1.2 trillion from the deficit in 10 years, and the fiscal cliff if they failed.  The committee failed and Congress kicked the can down the road for the lame duck session.

According the Obama administration the average family of 4 that makes $55-$85K can expect to have their taxes increase around $2,200 a year.  This added tax revenue and the spending cuts across domestic and defense will decrease the deficit.  The Congressional Budget office projects that under current 2012 policies the Federal Debt will be at 90% of the GDP in 2022.  If we go over the fiscal cliff the debt will be just 58% of GDP in 58%. 

The problem with such drastic changes in fiscal policy is that it will cause the economy to contract and increases to the unemployment rates.  This would cause the type of unrest that most politicians can’t stomach.  Take for example what similar measures that have done in European nations, like Greece, have resulted in. 

I think that the fiscal policies of this nation have already run us off the fiscal cliff.  The question now is how long it takes to hit bottom and how hard we hit.  Dealing with this problem now meaningfully will probably cause some short term pain.  Kicking the can down the road will only delay the pain and make it more severe. 

It has taken years for us to get into the state we are now, starting with the Bush administration and continuing with the current one.  Unwinding the mess in a controlled way would take a lot of political resolve to stick to the course.  I doubt the current political class has the kind of statesmen that would be up to that task.  Which leaves us will only a quick and sudden solution.  Let’s hope that this isn't kicked down the road yet again.