For more than a year, Americans have heard a steady drumbeat about the dangers of the proverbial fiscal cliff from politicians, pundits and others.
When the clock strikes 12 on December 31, we've been told, an economic and financial time bomb will be triggered that will drag the country back into recession, cause stock markets to tumble, unleash another layer of unemployment and saddle middle-class Americans with thousands of dollars of additional taxes each year.
While dramatic, this scenario is unlikely to play out as forecast, said one local economist.
"On January 1, we will have started down a path where a range of people in a wide swath of life will suffer. We're expecting a hatchet on January 1 and everyone will be bleeding but it won't work out that way," said Wilhelmina Leigh, Ph.D., a senior research associate on economic security issues at the Joint Center for Political and Economic Studies in Northwest. "I think there are some clear, negative likely implications if we go off the fiscal cliff. Lights wouldn't go off but people may have to burn lights six hours a day and eat two meals instead of three. All the cuts will be spread out over the next decade so you won't see its effects instantly. This might have been done for people to buy time or it might have been the least painful way – if you have to suffer, it's better to spread it out."
The fiscal cliff refers to a succession of tax increases and automatic spending cuts poised to go into effect in January. There would be about $100 billion in automatic cuts to defense and domestic government spending, and it would trigger about $400 billion in tax hikes precipitated by the expiration of income tax breaks, such as the alternative minimum tax, the temporary payroll tax cut and other income tax breaks adopted during the Bush administration.
Overall, economists say, the average household would see an estimated $4,400 annual increase in taxes.
Also looming on the horizon, said Eric Mitchell, is sequestration.
"They made a very bad piece of legislation to get Congress and the president to work together," said Mitchell, director of government relations with Bread for the World, a faith-based, anti-hunger organization in Southwest that advocates on behalf of the poor and the needy. "The current Bush tax cuts are expiring all at once and without $1.2 trillion in savings, there will be across-the-board cuts to almost every federal domestic and international program."
With three weeks before the end of 2012, talks surrounding solving the fiscal cliff problem have taken center stage. President Barack Obama – newly elected and emboldened by his solid thrashing of GOP contender Mitt Romney and polls showing solid public support for his position advocating higher taxes for the wealthiest two percent in this country – has been adamant. On the other side is House Speaker John Boehner (R-Ohio), who says he wants to make a deal but he has to contend with a fractious bunch of conservatives, the Tea Party Caucus and anti-tax crusader Grover Norquist who are in no mood to compromise and remain deeply opposed to tax hikes of any kind. Boehner must balance his desire to make a deal with the possibility that doing so could end up costing him leadership of the House. Last Friday, he and Obama met at the White House for talks and they have also had telephone conversations.
Congressional Republicans forced Obama to accept their proposal to cut the $1.2 trillion from social programs in exchange for raising the country's debt limit last year. The GOP has used the debt ceiling as a cudgel seeking concessions for approval to raise the debt limits. Concerns about the deficit led to both sides agreeing to create a congressional super-committee to develop a deficit reduction plan. But the super-committee failed to forge an agreement, leading to the prospect of automatic spending cuts or sequestration. The $1.2 trillion in cuts begin in 2013 and ends in 2021.
Mitchell said Bread for the World's greatest concern is the effect the cuts will have on the poor. He said about 8.2 percent in cuts is expected deepening the woes of the poor and near-poor, describing the current scenario as more of a fiscal slope than a fiscal cliff.
"It will take time for these particular cuts to take hold but we will see a gradual decline over time. These threats are very serious not propaganda," Mitchell said. "Our position is that there would be significant cuts in federal programs affecting low-income residents. This is on top of the over $1 trillion in cuts already made. Our community will be disproportionately affected."
Officials from Bread for the World said last week that they have grave concern for the effects any budget plan would have on poor people. They called for more to be done to protect poor people and shared data comparing Obama's proposal with Boehner's.
"President Obama's proposal appears to protect poor people, while Speaker Boehner's would cause a lot of hurt," said the Rev. David Beckmann, president of Bread for the World. "But neither proposal explicitly commits to a circle of protection around programs focused on poor and hungry people."
Leigh said the fiscal cliff will tear the safety net and contribute to people's suffering on a whole. She cited examples of local hospitals being closed if they don't receive Medicare and Medicaid reimbursements; layoffs; contractors in the city not hiring; people without disposable income which keeps businesses viable; "and everyone waiting for the other shoe to drop."
In addition, she said housing assistance grants will likely be cut and students will be denied access to college.
"We're cutting into things that are critical to the well-being of the country," Leigh said.
While the situation merits concern, Political Scientist and Analyst Avis Jones-DeWeever said leaders of both parties have some wiggle room if they need it.
"It's not a hard and fast and the world will not end if the deadline passes. If the only option is to go past the deadline to get a better deal for working families, we should wait," she said. "This was part of a bad deal that grew out of the debt-ceiling shenanigans last year. This was created so that people would come to the table and be reasonable. That requires good faith on both sides. But we don't have that on the Right."
Jones-DeWeever, executive director of the National Council of Negro Women, said Republicans are posturing that they don't want to raise revenue even though they got shellacked on Nov. 6.
"Boehner has to be the adult in the room and has to balance both constituencies," she said of the factions in the House GOP. "There is a constituency that doesn't care about a certain part of the population – those living on the edge and who need those social programs to survive. They consider struggling Americans to be almost sub-human."
Leigh took a different tack.
"People voted into office seem to be unwilling to take difficult positions that could cause them difficulties in elections," she said. "We've gotten into this pattern of pushing things off. We have an ideological stalemate. This business of not raising taxes is absurd. You're taking away a large chunk of the revenue you need for the government to operate. Tax policy and monetary policies are what keep the government afloat."
"I don't think the ideological stalemate will go away but if someone is cast as being the reason for us going over the fiscal cliff, they will suffer for the next 15-plus years."