The Fiscal Cliff

You've probably heard this phrase a million times so far this year - and you are going to hear it a million more.  Prepare yourself for the buzz word of the back half of 2012: the fiscal cliff.

Okay, let's start with the basics - what is the fiscal cliff?  It's essentially two things:

1. The expiration of the "Bush Tax Cuts" - across the board.  This means that every tax bracket will see their taxes return to the pre-Bush era.  Essentially, it's a tax increase.  President Obama is calling for a one-year extension of the cuts for anyone making $250,000 or less, while Republicans are calling for an across the board extension.  
2. Sequestration.  As a result of the Super-Committee's failure to come to a consensus on spending cuts, $1.2 trillion in defense and discretionary spending cuts will be enacted over a ten year period.  Congress could, of course, revise the spending cuts, but we've all seen just how functional Congress is these days, so right now, that isn't likely.

Meanwhile, Congress needs to pass a spending authorization measure by September 30, or the federal government shuts down.  

Both of these things are good for the United States' long-term deficit reduction efforts, but bad for the economy right now, given its shaky state and the constant debt and austerity issues in Europe.  

So, what happens if we jump off the fiscal cliff?  According to the non-partisan Congressional Budget Office, if we do go off of the cliff, the US will enter a recession in the first half of 2013, with the GDP dropping 4% - but, if everything is extended a year, the economy will grow 4%.

Wow.

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