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What is the fiscal cliff?

Updated on May 23, 2012

A we headed for a fiscal cliff?

America might be headed for a economic crisis by the end of 2012 if Congress does nothing to prevent the so called fiscal cliff. So what is the fiscal cliff? By the end of the year the Bush tax cuts are set to expire as well as various spending programs like extending unemployment benefits. The total impact of these tax cuts and spending programs would add up to about $600 billion and could push the nation back into a recession if this happens.

The problem of course is a double edged sword, if you extend these programs and avoid the fiscal cliff then Washington keeps on spending and ultimately adds more to the structural deficits which are out of control. This would certainly lead to another debt downgrade and do nothing to fix the nations growing deficit problem. On the other hand if America is pushed and falls over the fiscal cliff we endure another recession and irreparable damage to the economy which may add to the debt any ways. The bottom line is there is no great solution to this mess no matter who gets to be the next president. Since this is an election year you will here the word fiscal cliff a number of times and both parties will try and use it to their advantage to push the agendas. Unfortunately there really is no great solution out of this mess and the fiscal cliff may be unavoidable.

The CBO predicts a recession

The Congressional Budget Office (CBO) predicts a recession if America falls off the fiscal cliff. The CBO is a nonpartisan agency of Congress that produces economic analysis and estimates of the cost of legislation. If recession were to hit the CBO said the economy would contract at least 1.3% for the first half of 2013. Nobody wants this to happen so look for Congress to extend the Bush tax cuts and to keep some of the spending programs in place to head off this potential economic disaster. The fiscal cliff seems avoidable for the short term however Congress is running out of time and choices as they stare down yet another trillion dollar deficit for 2012 and possibly for 2013 as well.

Stay tuned to see how Washington handles this mess...


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    • ib radmasters profile image

      ib radmasters 5 years ago from Southern California

      When you are in an abyss, everything looks like a wall, and there are no cliffs.

    • jdavis88 profile image

      Joseph Davis 5 years ago from Florida

      The Bush tax cuts will likely be renewed, but what Congress will do for long term liabilities such as Social Security and Medicare is a huge question. Nobody want's THEIR money touched, whether it's the millionaire or the retiree.