By CONNIE CASS, Associated Press
WASHINGTON (AP) — The "fiscal cliff" crisis bundles together some of Washington's toughest decisions — the ones lawmakers have dodged for years — and says settle them all right now. Or else. Yet bedrock differences between Democrats and Republicans stand in the way.
No wonder it's hard to shake hands on a deal by New Year's.
Failure is a lousy option, nonetheless. It would jeopardize the U.S. economy and reverberate around the world. Here's a look at the hazards of the fiscal cliff and why it's so tricky for Congress and President Barack Obama to find a safe way down:
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UNLUCKY 2013
Partly by fate, partly by design, some scary fiscal forces come together in January unless Congress acts to stop them. They include:
— Some $536 billion in tax increases in 2013, touching nearly all Americans. George W. Bush-era income tax cuts are set to expire. So is a temporary Social Security tax cut, and several 2009 tax breaks designed to stimulate the economy by aiding low- and middle-income families. The alternative minimum tax would expand to catch more taxpayers. Taxes on investments would rise, too. More deaths would be covered by the estate tax. Some corporate tax breaks would end.
— About $110 billion in indiscriminate cuts in federal spending next year. By law, the cuts must be divided evenly between the military and non-defense spending, including Medicare, although some programs for the poor would be exempted. That means cuts of almost 8 to 10 percent across all departments, from agriculture to law enforcement to veterans affairs. Plus, federal spending on emergency assistance for the long-term jobless would run out.
All that happening at one time is what's called going over the "fiscal cliff."
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HOW BAD WOULD IT BE?
Taxes would jump about $2,000 for a middle income family, according to a study by the non-partisan Tax Policy Center. Because consumers would get less of their paychecks to spend, businesses and jobs would suffer.
At the same time, Americans would see notable cuts in some government services; federal workers would be laid off, and companies would lose government business.
The double whammy would push the nation back into recession and cost up to 3.4 million jobs, the Congressional Budget Office predicts.
If the U.S. goes over the cliff, Federal Reserve Chairman Ben Bernanke said Wednesday, "The consequences of that would be felt by everybody."
It wouldn't happen all at once on Jan. 1. The troubles would deepen over the course of the year.
If the year-end deadline passes, the new Congress might still reach a compromise in the early weeks of 2013 to end the crisis and reverse some of the tax increases and spending cuts.
But Bernanke says the economy is already feeling drag from uncertainty about what lawmakers will do, and that they need to act quickly.
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CAN'T THEY JUST SAY NO?
Congress and Obama could call the whole thing off, by extending the tax cuts and overturning the automatic spending reductions.
But that would leave the United States heading toward an even bigger precipice: a national debt crisis.
Obama and congressional leaders — especially the Republicans — say it's time to get serious about fixing budget deficits that have been hitting more than $1 trillion per year. If nothing is done, the U.S. eventually will be overwhelmed by its debt.
Indeed, the automatic spending cuts set for January were created as a last-ditch effort to force Congress to deal with the deficit problem.
Even if lawmakers agreed to whistle past the problem this time, another showdown would loom early in the year.
The government is again approaching its borrowing limit, and needs a vote of Congress to raise it. House Speaker John Boehner says Republicans won't go along with that unless the increase is matched by spending cuts. Failing to raise the debt ceiling could lead to a first-ever U.S. default that would roil the stock and bond markets.
So Democrats and Republicans really need to make a deal.
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DO THEY AGREE ON ANYTHING?
Neither side wants middle class tax rates to go up. And neither wants the chaotic, across-the-board budget cuts that come with the "fiscal cliff."
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