The US ‘fiscal cliff’ is said to be no such thing. But the epithet, or rather the misnomer as sections of the media put it, is so much in the news that it might take a little bit of financial expertise to understand what it is all about.
In simple terms, the fiscal cliff refers to the economic effects that could result from tax increases, spending cuts and a corresponding reduction in the US budget deficit beginning in 2013 if existing laws remain unchanged. The story is that the stroke of midnight at New Year will usher in sufficient taxes and spending cuts to provoke a deep recession. And with just two days to go until the year-end deadline triggers a series of spending cuts and tax increases for nearly all Americans, hectic discussions are going on between President Barack Obama and Republicans to avert a crisis.
But more than the impending crisis itself, its coverage in the media has been sensational, able to cause panic among people. Saner experts are saying there is no financial disaster of the kind going to happen as reported in the media, and the situation can just be called a slope, not a dangerous a cliff which connotes certain death, and in this case, fiscal disaster.
It’s true that there will be a severe crisis if corrective actions are not taken. Tax cuts made in 2001 by George Bush will expire in 2012, and higher social security rates would hit people for about $50 a month. Also, “discretionary” spending will be under threat and the immediate ending of unemployment benefits for two million people would hit the disadvantaged sections of the society. But the cumulative effect and pain of all these will be felt if no action is taken, and if their impact continues throughout the year. But that is unlikely to happen because President Obama is expected to act soon. On tax cuts, the president’s position is that only tax cuts for the top two percent of earners should expire. Republicans want more from the president and both sides held a meeting on Friday afternoon to discuss the issue. After the meeting, it was announced that both sides have agreed to to hash out a deal over the weekend that enough Republicans can accept. On taxing the super-rich, Obama should not be forced to listen to Republicans. Republicans must realise that their defeat in election is a defeat of their policies, which they now must abandon, and the President has a duty to remind them that they have been defeated.
Failing any agreement between the two sides, the White House is formulating plans to force a vote in Congress on diluted measures that would avert the immediate impact of heading towards the cliff. And this makes it less of a cliff.