With the U.S. presidential election out of the way, the “fiscal cliff” is looming large, threatening to destroy the progress our economy has made since its 2008 meltdown. Simply put, the fiscal cliff, a term coined by U.S. Federal Reserve Chairman Ben Bernanke, is a combination of spending cuts and tax hikes that will send the country into a deep recession if Congress and the President can’t find some other way to address our country’s deficit by Jan. 1, 2013.
Dec. 31 is when The Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010 which extended what are often referred to as “Bush era tax cuts” will expire, and on Jan. 1 spending cuts from the Budget Control Act of 2011 are due to go into effect.
“If you tote up all of the things that will happen on Jan. 1 – all the tax increases, all the spending cuts, everything – it actually totes up to $728 billion in calendar year 2013,” Moody’s Analytics Chief Economist Mark Zandi told CBS This Morning.
Taxes would increase by $536 billion as rates return to what they were in 2011. Payroll taxes, Federal income taxes, business, real estate, dividends and capital gains taxes would all go up, according to The Week.
At the same time, a $110 billion cut in federal spending would go into effect, gouging into defense, Medicare, and about 1,200 government programs; the first down payment against $1.2 trillion in spending cuts, set to take place over the next 10 years, according to USA Today.
The Congressional Budget Office, Congress’s budget arm, has predicted that the average American family will pay between $2,000 and $3,000 in additional taxes if a solution can’t be reached, The Wall Street Journal reported.
A new report from the CBO released today said if Congress is not able to come up with a solution, jobless rates will go up to 9.1 percent, Reuters reported today. The country’s economic output – its GDP, or gross domestic product – would drop by 0.5 percentage point.
The news isn’t all bad though. The CBO also predicted that the economy will recover and unemployment will drop to 5.5 percent by 2020.
Congress is due to meet next week to start hammering out a solution.