Tired of wall-to-wall election coverage? Ready to take a deep breath, fire up a few browser tabs, and get some variety in your news?
That's really too bad, because it's going to be all fiscal cliff, all the time, until the end of the year. For those who have been tuning out of government budget news over the past few months, here is a quick primer on the fiscal cliff and what it means.
What's the fiscal cliff?
It's a package of spending cuts and expiring tax cuts set to kick in on Jan. 1. All told, they will reduce the 2013 deficit by $770 billion, or around 5 percent of GDP (depending on whose numbers you look at).
So, what's so scary? Deficit reduction sounds good.
Cutting government spending by so much, not to mention raising people's taxes (meaning less money for people to buy things with), will really hurt GDP, and our economy is only barely recovering from the recession as it is. The Congressional Budget Office, which tells Congress the economic and fiscal impacts of its decisions, estimates that allowing all of those provisions to go into effect would send the economy into another recession in 2013, bringing next year's GDP growth to -0.5 percent, along with pushing unemployment back above 9 percent.
Good heavens. How is this even a thing?
Last summer, when Congress was arguing over the debt ceiling, these cuts were put in place as part of the deal they made.
Why would they even do that?
It seemed like a good idea at the time—a way of making a divided Congress take action by putting a really ugly consequence in place. Sort of like how you promise yourself that if you don't quit smoking/start eating more vegetables/quit talking about your medical problems on Facebook, you'll give $500 to your least favorite charity or shave half your head or something.
But my medical problems are important!
No one wants to hear about your psoriasis.
So if they don't do anything by New Year's Eve, then we're all doomed?
Things will be bad, yes, but not immediately. With all of the scary talk about recessions and unemployment, it's easy to think of all this as a reason for a Y2K-style, build-a-bunker-and-amass-weaponry freakout. But the effects won't be immediate.
Rather, the fiscal cliff is really more of a hill—we wouldn't all wake up on Jan. 1 to a new jobs crisis and immediate recession. The provisions would affect the economy over months. Defense cuts could hurt defense contractors, causing those companies to lay off workers. And tax hikes could mean that, come April, tax bills could be thousands of dollars higher for some families.
So calling it a "fiscal gentle slope" doesn't really convey a sense of the painful recession it could cause (not to mention the fact that it's not very punchy). Maybe think of it as a slope covered with pointy rocks and raptors. Angry raptors. With crossbows.
But that sounds awesome!
As a metaphor for the economy, it's not.
What else can Congress do? They can hunker down over the next few weeks and quickly strike a balanced deal that cuts spending and raises revenues, all without tanking the economy, thereby putting the nation on a sustainable long-term path to fiscal health. And maybe they can even get it done before Thanksgiving!
Great! Sounds easy enough.
Hahahahaha. "Easy." Oh man. It still could very well happen that Congress reaches a deal before the end of the year. But that could be a very tall order for a Congress that has been so tightly gridlocked at every turn. Not to mention the fact that many congressional Republicans have signed a pledge from Grover Norquist's group, Americans for Tax Reform, to oppose tax increases. However, House Speaker John Boehner did give a little ground this week, saying that revenue increases (but not higher tax rates) might be considered.
Congress could also choose push the fiscal cliff provisions into next year, dealing with them in the next Congress. That might be a welcome reprieve, but it would also prolong the policy uncertainty that is making businesses leery of investing and consumers leery of spending.