What Exactly Is the Fiscal Cliff?

The fiscal cliff refers to a number of tax hikes and spending cuts that will go into effect on Jan. 1, 2013. If Congress and President Obama do not agree to act on averting this perfect storm of financial disaster, then America will, as the term has been coined, “fall off the cliff.” The tax increase alone will be more significant than any in the last half century.

According to a recent report from the Congressional Budget Office (CBO) the fiscal cliff (by virtue of taking billions of dollars out of the economy) would drive the U.S. into a recession next year and increase the jobless rate to 9.1% by the end of 2013. In addition, the CBO said economic output would drop by about one half of one percent in 2013 if Congress fails to act to reverse the tax increases and spending cuts put in motion by an earlier deficit agreement. It starts to take effect in January and includes $7 trillion worth of tax increases and spending cuts over a decade. In addition, the debt ceiling — the legal limit on federal borrowing — will need to be raised by early next year from its current level of $16.394 trillion.

So what tax hikes and spending cuts exactly make up the fiscal cliff? Continue reading »

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