It should be obvious to anyone who follows the news even cursorily that the biggest issue in Washington right now is the matter of the upcoming “fiscal cliff.” If this seems like an overly dramatic expression, it’s because the issue itself is extraordinarily dramatic and, if allowed to transpire, threatens to unleash a host of devastating repercussions not only on this country’s economy, but also on that of the entire world. What happens in the coming weeks – before January 1, when most of the fiscal cliff’s provisions are scheduled to take place – will be crucial. The fate of the economy’s health in the year 2013 rests in the hands of the Obama administration, Senate Democratic leaders, and John Boehner, the House Speaker. None of these players wants the fiscal cliff to occur, and yet key disagreements may make it inevitable.
So what exactly is the fiscal cliff? It refers to rises in taxes and drastic cuts in spending that were written into law and scheduled to occur on January 1, 2013. The tax increases and spending cuts that will take place on that day are staggering in severity: all the Bush tax cuts will expire; there will be across-the-board cuts totaling trillions of dollars over several years as specified by the Budget Control Act of 2011; the reversion of the Alternative Minimum Tax thresholds to their 2000 tax year levels; the expiration of measures delaying the Medicare Sustainable Growth Rate from going into effect; the expiration of the 2% Social Security payroll tax cut; the expiration of all federal unemployment benefits; and the imposition of taxes through Obama’s Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.