The Fiscal Cliff

The fiscal cliff addresses the possibility of acquiring billions of dollars in tax increases and spending cuts in social programs on January 1, 2013 unless a different decision is decided upon by President Obama and Congress. If no action is taken, taxes will automatically rise for nearly everybody and there will be huge cuts to spending on social benefits and programs. Mainly the Bush tax cuts will expire and Medicare, Social Security and education departments will be affected.

The Bush tax cuts were tax breaks for certain incomes and these are the main focus of the fiscal cliff situation because they will expire as of December 31. If nothing is done about it, then taxes will go up, about $500 billion dollars more will be collected. This is said to help reduce the deficit, but some argue that this will be too much of a shock to the economy and put us into a small recession again because so much money will be concentrated on fixing the deficit and will make the economy even more weak.

The debt-ceiling is another issue. It goes hand in hand with reducing the deficit. If spending cuts and tax increases are used together, the deficit can be amended and the debt-ceiling will not have to go any higher. Another thing affected are the payroll tax holiday cuts. These are one of the tax cuts affected by the fiscal cliff. Citizens making any amount of income may not see any holiday tax cuts if the fiscal cliff is reached without any agreements.