You hear about it on the news all of the time. You read about it in the newspaper. But what is “The Fiscal Cliff”?
Go back in time to August 2, 2011. The United States had hit the debt ceiling. That doesn’t mean we were on budget, that means that the agreed overspending amount of $14.294 trillion dollars had been reached. The U.S. was going to go into sovereign default on August 3rd. In other words, we were about to default on our loans. To avoid this scenario, President Barack Obama signed the Budget Control Act of 2011 into law. Sounds good, right? I think we all understand the budget needs to be under control.
But, what did the Act do? First, it raised the debt ceiling by another $400 billion. In other words, we went further into debt to avoid not being able to pay our debts. To put it into a real-life example for us normal folks, that’s like taking a loan out on your credit card in order to pay your home mortgage. The act also gave the president the ability to increase the debt ceiling by another $500 million if needed. Now, congress could say no, but the Act also allowed the president to veto congress. The Act further allowed the president to increase the debt by another $1.2–1.5 trillion, if he needed to, with the same disapproval/veto provisions.
So, where does the balanced budget come in? Well, the bill also specifies $917 billion of cuts over 10 years in exchange the initial debt limit increase of $900 billion. So, the government could go $900 billion further into debt so that they could, over the next 10 years, reduce spending by $917 billion.
Remember the total debt ceiling above? $14.294 trillion? I’m having a little trouble with the math, but if I understand this correctly, they are going to shave $17 billion off of that with this Act (assuming it’s successful). That still leaves us $14 trillion in debt.
Our government doesn’t seem to understand what a balanced budget is, opting instead for a slightly reduced budget.
That’s part one of the Fiscal Cliff. Part two is that other laws are going into effect at midnight on December 31, 2012. Temporary payroll tax cuts were put into effect in order to stimulate spending. Those will disappear, resulting in a 2% tax increase for those of us who work. Tax breaks for businesses designed to stimulate job growth and development are ending. The tax cuts from 2001-2003 also designed to stimulate the economy will end. Taxes related to Obamacare will begin. And, the spending cuts agreed on in order to increase the debt ceiling last year will go into effect. Over 1,000 government programs will be affected by these cuts including the military and Medicare, which will be the hardest hit.
Where do we go from here? That depends largely on our politicians. They can go forward with the current plan which is expected to send us back into another recession, or they could cancel some of the tax increases and spending cuts and just further increase our national debt, or any combination of the two.
To put this on a personal level, now is NOT the time to go out and spend money you don’t have on Christmas presents. I’m not trying to be a Scrooge. If you have the money, by all means, buy gifts for your family and friends. But if you can’t afford it, be responsible and suck it up. Give home made gifts instead this year. Make memories with your family. Take some awesome photos and put them in an album, or copy some old photos and make memory books for your family and friends.
It’s time for the American people to be smarter than their government. We can’t expect the government to function within budget when we exceed ours as well. Let’s start a grassroots movement; one person at a time, then one family, one church, one neighborhood, one city, one county, one state, one nation under God. We can do it, if we truly want to be debt free more than we want stuff.
Let’s not fall off the cliff — let’s spread our wings and fly!