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Why are people calling it the "fiscal cliff"? Isn't it supposed to make the fiscal situation better?

by lutorm 14y ago

TomatoTomato 14y ago
The Congressional Budget Office reported an increased risk of recession during 2013 if the deficit is reduced suddenly. The Budget Control Act of 2011 was passed under the political environment of a partisan stalemate, in which Democrats and Republicans could not agree on how to reduce the deficit. It was thought that the blunt cuts of budget sequestration and sharp revenue increases would be mutually undesirable to both parties and provide an impetus and deadline to bring the sides together to solve the deficit problem [1]. Note that the debt ceiling is about to be hit again, which adds to the cliff and the US Credit rating will almost assuredly fall again if we go over it [2]. It's very hard for the CBO to accurately calculate expected revenues with a looming recession, so good it is not. [1]: http://en.wikipedia.org/wiki/United_States_fiscal_cliff http://en.wikipedia.org/wiki/United_States_fiscal_cliff [2]: http://articles.chicagotribune.com/2012-11-14/business/sns-rt-us-usa-fiscal-ratingsbre8ad1s4-20121114_1_downgrade-sovereign-risk-group-debt-trajectory http://articles.chicagotribune.com/2012-11-14/business/sns-r...
- anonymoushn 14y ago
  > US Credit rating will almost assuredly fall again if we go over the cliff [2]. The cited article indicates the opposite -- that simply reducing the deficit by doing nothing would encourage the ratings agencies not to cut the US credit rating, while passing "temporary measures" that allow us to keep our high deficit and are very unlikely to be temporary would give us better odds of a downgrade.
  - TomatoTomato 14y ago
    Quote from article: "Fitch, meanwhile, said even a deal to avert the cliff might not be enough to save the country's AAA rating."
    - anonymoushn 14y ago
      The preceding sentence: "Ultimately, if Congress and the president can't reach a deal to stabilize and eventually reduce the debt, now at $16 trillion, Moody's will probably cut the United States' current Aaa rating." Doing nothing is much closer to this sort of deal than any measure that reduces the amount of tax increases or spending cuts. The following sentence: "Temporary measures to stave off the budget shock without a credible strategy for the years beyond could earn the country a downgrade, said David Riley, managing director for sovereign ratings at Fitch."
- rayiner 14y ago
  It should be noted that the CBO predicts increased risk of recession in 2013, but a better overall fiscal position in 2022.
sliverstorm 14y ago
As a rule of thumb, any time the government is going to tax you more (even if it is $0.01 more) people will freak. Hence I am not surprised by creative names. I don't necessarily support the changes to taxation that this thread is about- just a general observation.
pessimizer 14y ago
No, it's supposed to raise taxes and cut spending, which will send us into another recession. The recession will drastically lower tax revenues, creating the need to further cut spending and further raise taxes.
gwright 14y ago
Cliff simply illustrates the discontinuous change in tax rates that occurs on January 1st. In this particular case there are several different tax rates that are all scheduled to change on January first so that the discontinuity is not just a 'bump' but instead is a 'cliff'.

Why are people calling it the "fiscal cliff"? Isn't it supposed to make the fiscal situation better?

by lutorm 14y ago

Why are people calling it the "fiscal cliff"? Isn't it supposed to make the fiscal situation better?

The Congressional Budget Office reported an increased risk of recession during 2013 if the deficit is reduced suddenly. The Budget Control Act of 2011 was passed under the political environment of a partisan stalemate, in which Democrats and Republicans could not agree on how to reduce the deficit. It was thought that the blunt cuts of budget sequestration and sharp revenue increases would be mutually undesirable to both parties and provide an impetus and deadline to bring the sides together to solve the deficit problem [1]. Note that the debt ceiling is about to be hit again, which adds to the cliff and the US Credit rating will almost assuredly fall again if we go over it [2]. It's very hard for the CBO to accurately calculate expected revenues with a looming recession, so good it is not. [1]: http://en.wikipedia.org/wiki/United_States_fiscal_cliff http://en.wikipedia.org/wiki/United_States_fiscal_cliff [2]: http://articles.chicagotribune.com/2012-11-14/business/sns-rt-us-usa-fiscal-ratingsbre8ad1s4-20121114_1_downgrade-sovereign-risk-group-debt-trajectory http://articles.chicagotribune.com/2012-11-14/business/sns-r...

anonymoushn 14y ago
> US Credit rating will almost assuredly fall again if we go over the cliff [2]. The cited article indicates the opposite -- that simply reducing the deficit by doing nothing would encourage the ratings agencies not to cut the US credit rating, while passing "temporary measures" that allow us to keep our high deficit and are very unlikely to be temporary would give us better odds of a downgrade.
- TomatoTomato 14y ago
  Quote from article: "Fitch, meanwhile, said even a deal to avert the cliff might not be enough to save the country's AAA rating."
  - anonymoushn 14y ago
    The preceding sentence: "Ultimately, if Congress and the president can't reach a deal to stabilize and eventually reduce the debt, now at $16 trillion, Moody's will probably cut the United States' current Aaa rating." Doing nothing is much closer to this sort of deal than any measure that reduces the amount of tax increases or spending cuts. The following sentence: "Temporary measures to stave off the budget shock without a credible strategy for the years beyond could earn the country a downgrade, said David Riley, managing director for sovereign ratings at Fitch."
rayiner 14y ago
It should be noted that the CBO predicts increased risk of recession in 2013, but a better overall fiscal position in 2022.

sliverstorm 14y ago

As a rule of thumb, any time the government is going to tax you more (even if it is $0.01 more) people will freak. Hence I am not surprised by creative names. I don't necessarily support the changes to taxation that this thread is about- just a general observation.

pessimizer 14y ago

No, it's supposed to raise taxes and cut spending, which will send us into another recession. The recession will drastically lower tax revenues, creating the need to further cut spending and further raise taxes.

gwright 14y ago

Cliff simply illustrates the discontinuous change in tax rates that occurs on January 1st. In this particular case there are several different tax rates that are all scheduled to change on January first so that the discontinuity is not just a 'bump' but instead is a 'cliff'.