The Fiscal Cliff Looms

Barrington M. Salmon | 12/12/2012, 9:15 a.m.

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.