Fiscal Cliff Confusion: A Brief Explainer

For all of the talk about the “fiscal cliff,” there are also lots of folks who don’t quite know what it means. The term itself is pretty new (and maybe not the most accurate wording), as it was coined by Federal Reserve Chairman Ben Bernanke earlier this year.

In short, the fiscal cliff is a $500 billion package of tax increases and spending cuts that will take effect Jan. 1, unless President Obama and Republicans can find an alternative solution to reduce the deficit. As of this writing, the two sides are pretty far apart.

The New York Times has written quite a bit on the fiscal cliff, and this Q&A provides probably the clearest explanation of what it all means. For example, what happens if a deal isn’t reached in time:

Taxes would rise for nearly every taxpayer and many businesses. Financing for most federal programs, military and domestic, would be cut. Many economists say that while annual budget deficits are too high, these new taxes and spending cuts would be too much deficit reduction, too suddenly, for a weak economy. More than $500 billion equals roughly 3 percent to 4 percent of gross domestic product. The Congressional Budget Office has said the result would be a short recession, though some analysts say the measures could be managed so they do less damage. “Slope,” they argue, is a better metaphor than cliff.

One of the big hits if no deal is reached would be a 27 percent reduction in Medicare payments to doctors, which equals roughly $11 million. But the biggest (here comes another vocab term) is the “sequester,” a $65 billion across-the-board cut to most federal programs.

As with most changes at the federal level, we would feel a severe trickle-down effect here in New Hampshire. The Pew Trusts prepared a report last month that shows some of the impact of failure to reach a deal. The biggest would be the state losing federal grants that equal nearly 7% of annual revenue. Putting it more in perspective, a study by George Mason University found that the cuts would cost New Hampshire more than six thousand jobs.

SEA members recently went to Capitol Hill to tell legislators to push legislators to find a solution to the problem that brings jobs, not cuts. Read more about their trip here

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