Over the Fiscal Cliff: Soft landing or dizzy dive?

Written by admin   // December 26, 2012   // 0 Comments

Efforts to save the nation from going over a year-end “fiscal -cliff” were in disarray as lawmakers fled the Capitol for their Christmas break. “God only knows” how a deal can be reached now, House Speaker John Boehner declared.
President Obama, on his way out of town himself, insisted a bargain could still be struck before Dec. 31. “Call me a hopeless optimist,” he said.
A look at why it’s so hard for Republicans and Democrats to compromise on urgent matters of taxes and spending, and what happens if they fail to meet their deadline:
New Year’s Headache
Partly by fate, partly by design, some scary fiscal forces come together at the start of 2013 unless Congress and Obama act to stop them. They include:
Some $536 billion in tax increases, touching nearly all Americans, because various federal tax cuts and breaks expire at year’s end.
About $110 billion in spending cuts divided equally between the military and most other federal departments.
That’s about 8 percent of their annual budgets, 9 percent for the Pentagon.
Hitting the national economy with that double whammy of tax increases and spending cuts is what’s called going over the “fiscal cliff.” If allowed to unfold over 2013, it would lead to recession, a big jump in unemployment and financial market turmoil, economists predict.
What if they miss the deadline?
If New Year’s Day arrives without a deal, the nation shouldn’t plunge onto the shoals of recession immediately. There still might be time to engineer a soft landing.
So long as lawmakers and the president appear to be working toward agreement, the tax hikes and spending cuts could mostly be held at bay for a few weeks.
Then they could be retroactively repealed once a deal was reached.
The big wild card is the stock market and the nation’s financial confidence: 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.–(USA Today)








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