By Teresa Welsh |
At the end of 2012, the United States is scheduled to go over the "fiscal cliff," a combination of tax increases and spending cuts that could bring the country's tepid economic growth to a grinding halt. The Bush tax cuts, which were originally scheduled to expire at the end of 2010, are again scheduled to run out at the end of this year. President Barack Obama's 2 percent payroll tax deduction as well as the extension of long-term unemployment benefits are also set to expire. These events, as well as the fact that around 26 million households will again be subject to the Alternative Minimum Tax, could mean that households may be paying up to $3,000 more in taxes each year.
In addition to this higher tax burden, government spending will be automatically reduced on January 1 as a result of the agreement forged in 2011 by Obama and Congressional Republicans to avoid the debt ceiling. Called sequestration, this will affect all areas of the federal budget from the defense department to entitlement programs.
If Obama and Congress don't come to an agreement to prevent the fiscal cliff from taking place and all of these items are fully implemented, economists say they could cost the U.S. economy $800 billion. This could potentially send the country back into a recession. Yet those worried about bloated government spending say going over the cliff would help deal with the U.S. budget once and for all. They argue that the approach of the automatic spending reductions could finally allow the country to take the continually postponed steps towards reducing the deficit.
Progressives say that the cliff is misnamed and that it is actually more of a gradual slope, so going past the January 1 deadline would not truly be the end of the world. It would also raise taxes without Republicans having to vote to increase them.
Is going over the "fiscal cliff" necessarily the worst outcome? Here is the Debate Club's take:
Ford O'Connell Republican Strategist, Conservative Activist, and Political Analyst
Daniel Mitchell Fellow at the Cato Institute
Bill Frenzel Guest Scholar in Economic Studies at the Brookings Institution
James Capretta Fellow at the Ethics and Public Policy Center
Brad Bannon President of Bannon Communications Research
Patrick Sharma Explainer-in-Chief at Newsbound.com
Michael Lind Cofounder of the New America Foundation