Fiscal cliff what is

But you know what's worse than a short-term recession? A bad long-term deal. Skip to content Site Navigation The Atlantic. Popular Latest.

The Atlantic Crossword. Sign In Subscribe. Should We Avoid the Fiscal Cliff? The CBO has projected that making a deal to avoid the fiscal cliff entirely would improve GDP growth by an astounding 2.

To put that in perspective, we're expected to grow by 1. About two-thirds of this growth would come from keeping taxes down. The rest would come from keeping spending up.

To fully appreciate this graph, don't think of the fiscal cliff like a cliff. Think of it like weights in a backpack when you run. The U. Each weight slows us down. Taking any of them out makes the bag lighter and helps us run faster. Eventually, the U. And then I'm going to do some bar charts to show the different scenarios. And as I do this, keep in mind the size of the US economy. So that is roughly our GDP, depends on which year you're measuring. But that gives us at least a frame of reference for what chunk of GDP we are talking about when we talk about the federal budget.

So let's start with the Let's start with the budget. So let me make my graph a little bit more granular. So this would be 3. So let me draw that. And I'll do it in this purple color for the expenditures. So this is how much the federal government spent or I guess is spending in So just like that.

All right, there we go. So that's expenditures. Now you are probably aware that we don't have all of the revenue. Our revenue that we get through tax revenue and other things is somewhat less. So I'll draw that right over here. I'll do it in this green color. So this is how much revenue was brought in. So let me write this down. Now let's think about how much might get spent under the different scenarios. So first I'll lay out a rough approximation of Obama's budget proposal for So Obama in So let's see this.

And the next few videos, we could talk about the pros and cons, the arguments for and against something like that. So relative to the 3. That gets us to 3. If my best estimate of what the Republicans in Congress would want. So let's write. Let's say, a Republicans in is that they would actually ideally want spending cuts from these levels.

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Reshape Tomorrow Tomorrow is different. Obama charged the commission to lower the budget deficit to 3 percent of the gross domestic product. As a result, negotiations to avoid the fiscal cliff dominated the news during the presidential campaign. The impasse was in three areas:. Obama said his highest priority after winning the election was to work with Congress to resolve the fiscal cliff.

On November 22, the president met with the leaders of the House and Senate. It seemed a deal was imminent. Senate Majority Leader Harry Reid said the talks went so well that he thought it would be done before Christmas.

It seemed the two sides were more than willing to compromise. The Democrats would cut a little more than they wanted. Republicans would allow more tax increases than they wanted.

Obama developed a "Plan A" proposal. Obama included some stimulus spending, such as building roads, that he surely knew wouldn't get passed.

He also hinted he would be willing to let extended unemployment benefits go. Obama left room for negotiation and compromise. In early December, the two parties were pretty close in some areas. For example, no one wanted sequestration.

This showed that businesses were more relaxed about tax increases than many Republicans. He went on to add that the economy would immediately leap to a 4 percent growth rate once the cliff was resolved. His prediction indicated just how much the uncertainty around the fiscal cliff was hurting the U. But he lost the support of the Tea Party.

Many had signed a pledge that they could not vote for tax increases. They worried that if they allowed any tax increase, they would lose the mid-term elections in Instead, they were willing to let the Bush tax cuts expire.

If the country slipped off the cliff for a few days, they could vote for a tax cut from the new rate. They didn't think it wouldn't be disastrous, as any agreement would be retroactive. Stock market futures dropped more than points on the news. Congress adjourned for the holidays, promising to find a solution before the end of the year.

Republicans were unhappy that there weren't more spending cuts. The new bill contained the following six elements:. Congress extended some exemptions and deductions.