The "fiscal cliff": What to expect if there's no deal

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With "fiscal cliff" fast approaching, House and Senate still on holiday

Well, here we are less than a week before the "fiscal cliff" hits and lawmakers are scrambling to come up with at least a partial solution President Obama has cut short his Hawaiian vacation to help push Congress along as lawmakers return to get to the business of dealing with the "cliff."

• Obama cuts Hawaii trip short to address "fiscal cliff"

What happens if the country is forced over the "fiscal cliff" on January 1?

Various federal tax cuts and breaks enacted under President George W. Bush expire as well as the payroll tax holiday enacted under President Obama.

About $1.2 trillion in federal spending cuts begin to kick in (approximately $110 billion a year for 10 years), divided equally between the Pentagon and most other federal agencies.

And federal jobless benefits expire for 2 million unemployed Americans.

• Unemployed Americans fearing the "fiscal cliff"
• What does the "fiscal cliff" mean for the jobless?

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"Fiscal cliff": Effect on the economy

Hitting the national economy with the double whammy of tax increases and spending cuts is what's called going over the "fiscal cliff." If allowed to unfold over 2013, it could lead to recession, a big jump in unemployment and financial market turmoil, economists predict.

Taxes

If lawmakers fail to work out any sort of deal, there will be severe long-term consequences for the economy: According to the Tax Policy Center, going off the "cliff" would affect 88 percent of U.S. taxpayers, with their taxes rising by an average of $3,500 a year; taxes would jump $2,400 on average for families with incomes of $50,000 to $75,000. Because consumers would get less of their paychecks to spend, businesses and jobs would suffer.

Many economists, as well as the nonpartisan Congressional Budget Office, say the combination of spending cuts and tax hikes that are set to take effect would tip the economy into a new recession. The Congressional Budget Office has forecast that implementing all the mandated government spending cuts and tax hikes would reduce real GDP by 0.5 percent in 2013, with growth sinking in the first half of the year before resuming at a modest clip later in the year. The CBO forecasts that inaction would push up the unemployment rate to 9.1 percent by the end of 2013.

"The consequences of that would be felt by everybody," Federal Reserve Chairman Ben Bernanke said.

Spending Cuts

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No "cliff" deal means huge cuts for FAA

If the nation goes over the fiscal cliff, budget cuts of 8 percent or 9 percent would hit most of the federal government, touching all sorts of things from agriculture to law enforcement and the military to weather forecasting. A few areas, such as Social Security benefits, Veterans Affairs and some programs for the poor, are exempt.

The spending cuts, meanwhile, are phased in gradually. It's not as though $1.2 trillion would suddenly disappear from the economy at the end of the year: The cuts, while undeniably significant, are set to be phased in over a decade. In addition, there are budgetary maneuvers that can be taken to at least somewhat soften the blow of both the tax hikes and spending cuts. (The Treasury Department could, for instance, freeze paycheck withholding levels.) Certainly, total inaction on the "fiscal cliff" over the long term would likely have a deeply negative impact on the economy. But if a deal comes in January or February, after the deadline - as it well could - the structural damage could be relatively small.

The debate

Mr. Obama says any deal must include higher taxes for the wealthiest Americans. Many House Republicans oppose raising anyone's tax rates. House Speaker John Boehner tried to get the House to vote for higher taxes only on incomes above $1 million but dropped the effort when it became clear he didn't have the votes.

Republicans also insist on deeper spending cuts than Democrats want to make. And they want to bring the nation's long-term debt under control by significantly curtailing the growth of Medicare, Medicaid and Social Security - changes that many Democrats oppose.

Mr. Obama, meanwhile, wants more temporary economic "stimulus" spending to help speed up a sluggish recovery. Republicans say the nation can't afford it.

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"Fiscal cliff": Effect on investors

If lawmakers reach Dec. 31 without a deal, some economists worry that the financial markets might swoon. Would traders start to panic if Washington appeared unable to reach accord? Would worried consumers and businesses sharply reduce their spending? In what could be a preview, stock prices around the world dropped Friday after House Republican leaders' plan for addressing the fiscal cliff collapsed.

[RealityCheckReality]

According to Obama if this fiscal cliff happens it is the repubplicans fault. So does that mean if this happens and we fix some of this debt that Obama has done to us does that mean he will give credit to the republicans?

[RealityCheckReality]

My brother works for the Government and you should see the stuff the welfare people have in their houses. Big screen TV's in HD, Cable, Internet. Its appalling and that is all on Obama and us, we are paying for it.

I work in retail and you should see what people use the food stamp cards. None of them speak or read English and I have to come around and push the buttons for them on the ATM machine. They don't buy food you need they buy ice cream and candy and I am talking every single one of them.

You should be sickened by this

[RealityCheckReality]

My brother works for the Government and you should see the stuff the welfare people have in their houses. Big screen TV's in HD, Cable, Internet. Its appalling and that is all on Obama and us, we are paying for it.

I work in retail and you should see what people use the food stamp cards. None of them speak or read English and I have to come around and push the buttons for them on the ATM machine. They don't buy food you need they buy ice cream and candy and I am talking every single one of them.

You should be sickened by this

[CBSknows]

"AMERI-CAN-DO"

WE CAN AND WE MUST DO..

Combine a few letters from the words REPUBLICAN DEMOCRAT and they Could Spell..AMERI-CAN-DO & ABSOLUTELY ABSOLUTELY ABSOLUTELY SHOULD..SPELL..AMERI-CAN-DO

NEITHER OF THESE WORDS (REPUBLICAN,DEMOCRAT) SPELLED SEPARATELY CAN SPELL.. "AMERI-CAN-DO" It Takes Both To Spell AMERI-CAN-DO and it will take BOTH PARTIES TO BUILD A BETTER FUTURE FOR ALL OF AMERICA'S CHILDREN & THEIR CHILDREN.

"UNITED WE STAND" and "TEAM WORK WORKS"
(these statements aren't just words they are facts)

Mr. Obama Is NOT just the Democrats President he is "THE PRESIDENT OF THE UNITED STATES" ALL STATES & ALL PARTIES PRESIDENT.. MR. OBAMA.. IS AMERICA'S LEADER YOUR LEADER/OUR LEADER, HE WAS ELECTED BY AMERICA TO LEAD OUR NATION. "SO LET HIM LEAD"

"THIS IS WHY "WE THE PEOPLE PUT HIM IN OFFICE".. WORK WITH HIM "WHATEVER IT TAKES" COMPROMISE WITH THE PRESIDENT & WORK WITH HIM..THIS IS YOUR JOB.

IT CERTAINLY ISN'T PRODUCTIVE FOR ANY PARTY TO HURT AMERICAN'S BY NOT WORKING WITH AMERICA'S LEADER THAT;
"WE THE PEOPLE" ELECTED TO BE OUR PRESIDENT.

"TIME TO TEAM UP FOR THE GOOD OF OUR COUNTRY"

[CBSknows]

"AMERI CAN DO SO COMPROMISE"

By using Letters From BOTH Of These Names; REPUBLICANS, DEMOCRATS

It Spells Out The Solution, But It Takes Letters From Both Names To Spell:

"AMERI CAN DO SO COMPROMISE"

"PAST TIME TO COMPROMISE FOR THE GOOD OF AMERICA"

[regenesis333]

The country is long overdue for a heavy dose of reality. It's time to pay the price for overspending and under earning. Time to pay the price for killing over 50,000,000 unborn taxpayers (and counting). "The Rich" didn't get that way by being stupid. They will simply move their money making machines to other countries that welcome them with open arms leaving millions more Americans without jobs and more reasons to whine that someone else isn't paying their fair share.

[fendferyerself]

yep. The democrats think they have it all figured out.
Remember when Obama put that outrageous tax on cigarettes right after he got elected? Remember all the democrats drooling and rubbing their hands with glee thinking about all the $$$$ that was going to come rolling in? Laugh. People found all kinds of work-arounds, and the amount of money they actually brought in was a pittance! These are the types of sad lame unthought-out kinds of ideas that democrats dream up. They are so far out in la-la land. You can't help but laugh. And the rich will keep on being rich and yes they will take their business elsewhere, they will find so many work-arounds and loopholes that the democrats heads will be constantly spinning. And some of those democrats in congress are very wealthy as well, but are they hounded and disrespected and hated on? Nope! Only the wealthy REPUBLICANS.
That shows you how dumb the average democrat voter is. I thank god every day I was born smarter, and worked harder/smarter so far in my life on this earth, than the average dumb democrat voter. They are stuck in their poor-me mode of life and have no idea how to struggle upwards unless they keep getting a hand out! I really do feel sorry for them in a way.

[nearl451]

You are both deranged.

Abortions have nothing to do with the budget nor deficit crisis.

[carolo43]

One more thing we can thank Bush for! The Tax Cuts for the rich, a war based on lies, his poor response after Katrina, his failure to even search for bin Laden, his driving this country into a recession, the Part D Prescription Plan with NO money to pay for it and his Bill that prevents us from negotiating with drug companies on ridiculous drug prices. To name a few. And the only President ever to leave office with an approval rating of 23%.

And since Bush was so wonderful, we get the Tea Party that messes around and gets our credit rated reduced and now a Fiscal Cliff. What a Party the Republicans have.

[Avenger2109]

Typical useful-idiot response. It's time to quit blaming Bush for Obama / democrat failures. They've been in charge for more than four-years now ... they own the consequences of their actions.

[otter1111]

First of all, Obama owns this economy. The last budget passed was in 2009 when the democrats had majorities in both the house and senate. The last 4 years have given us over a trillion dollars per year deficits, something Bush never did. Obama got Obamacare passed, and the cost has been revised upward several times, more than double its initial cost of over a trillion. That doesn't include the unfunded liabilities to the states. Obama got the national debt to rise over 5 trillion in 4 years, TWICE the rate of Bush. You mentioned Katrina, what did Obama do after hurricane Sandy, other than a photo-op with Christie, and then go off to Vegas to raise money for his campaign?

Obama has spent us into oblivion and you blame the Tea Party? They are the ones that want to control spending. You've got it completely backwards, but I know from experience that liberals never listen to reason.

[carolo43]

One more thing we can thank Bush for! The Tax Cuts for the rich, a war based on lies, his poor response after Katrina, his failure to even search for bin Laden, his driving this country into a recession, the Part D Prescription Plan with NO money to pay for it and his Bill that prevents us from negotiating with drug companies on ridiculous drug prices. To name a few. And the only President ever to leave office with an approval rating of 23%.

And since Bush was so wonderful, we get the Tea Party that messes around and gets our credit rated reduced and now a Fiscal Cliff. What a Party the Republicans have.

[east_coast1]

I know what will happen if there is not a solution by Dec 31st. I will not be voting for any incumbent in the next election. Their lack of action will cost me no less than $150 per month in additional taxes yet they will still get all of the benefits of an elected official this country affords. What do they care? They are all millionaires with nothing but power on their minds. I propose a means to fire elected officials by special election. If a population determines that an elected official has not done their job in office, a special election can be called to have them fired and removed from office. Just like you ro I not doing a good job, it should have consequences.

[fendferyerself]

I so agree but most voters are absolutely dumb as rocks.
Consider all the Welfare Babies that were pumped out during the 1990's, they are all now eligible to vote and that is what gets Obama re-elected. None of them work. They are all on the gov't dole because that is how they were raised. These are the "voters" you are referring to, and believe me, they will never vote out a politician who is supporting their life of leisure and purposeless daily life! It is the "new America" and unless the other 'half' wizens up, they are going to gain more and more control and we are all going to have to find a sane country to move to and live in. And that is getting harder and harder. Germany ?!!! maybe.

[nearl451]

I have been waiting for an article titled as such.

What to expect?

1. A little moderate budget tightening for many.
2. About two weeks of Wall Street tantrums
3. Wailing and screaming in the 24/7 media
4. Lots of politicians pointing fingers at each other
5. A little bit of movement toward a sensible fiscal policy
6. Damned little effect on the actual economy (it'sbeen quite stable for 40 some months after all)

7. Armageaddon followed the second coming of Christ (OK, not really - but for all the hype, this is what we have been led to believe)

[RealityCheckReality]

The economy is not stable.