News / USA

    The US 'Fiscal Cliff' Explained

    A trader on the floor of the New York Stock Exchange looks at the front page of a newspaper the day after Presiden Obama was re-elected, November 7, 2012.
    A trader on the floor of the New York Stock Exchange looks at the front page of a newspaper the day after Presiden Obama was re-elected, November 7, 2012.
    Jim Randle
    With the U.S. elections over, President Barack Obama and Congress are turning their attention to the political stalemate called the “fiscal cliff.”  It is a tangle of major spending cuts and tax increases that could stall the national economy unless Democrats and Republicans quickly forge compromises.  
     
    The United States faces $600 billion in automatic tax increases and spending cuts that go into effect January 1, unless the two major political parties can reach an agreement.  
     
    The cuts would affect both the military spending favored by Republicans and the social programs supported by Democrats.  President Obama's Democratic Party controls the U.S. Senate, while Republicans have a majority in the House of Representatives. 
     
    On taxes, a key issue is whether to extend tax-rate reductions that have been in effect for years, but are due to expire at the end of 2012.  The reduced tax rates apply to all Americans, whatever their income.  Republican lawmakers say they want to continue all of the reduced rates; Obama and leaders of his Democratic Party have been trying to exclude this benefit extension for the country's wealthiest taxpayers - probably everyone whose family income is more than $250,000 a year. 
     
    The law mandating the cuts in 2013 was intended to force lawmakers to compromise on where and how much to reduce spending and raise revenue to reduce the federal budget deficit.


    What is the U.S. Fiscal Cliff?

    • An agreement intended to force politicians to compromise and make deals.
    • Without a deal by January 1, 2013, sharp spending cuts would hit military and social programs.
    • Tax hikes also would go into effect.
    • The combination would reduce economic activity, and could boost unemployment and push the nation back into recession.
    No compromise so far  

    Neither side has changed its position, so the effort to force compromise has been a failure, but the spending cuts and tax increases are mandatory. 
     
    Leon LaBrecque, chief strategist and founder of LJPR, a firm that manages nearly $500 million in assets for investors, says, "It very difficult to believe, although possible, that Congress and the president can solve these problems before December 31."
     
    Economists say that cutting spending and raising taxes so sharply would reduce demand for goods and services, slow economic growth and increase unemployment - and possibly push the United States back into recession. 
     
    Josh Gordon, policy director of The Concord Coalition, a nonpartisan organization that focuses on federal budget issues, takes a more optimistic view than LaBrecque.  He says Congress and the Obama administration probably will agree at least on an outline for a compromise.  
     
    Washington's annual budget deficits have been running higher than $1 trillion, pushing the total U.S. debt closer to the maximum legal limit, or debt ceiling; that limit has been adjusted upward many times during the past decade and now is about $16 trillion.  The president and Congress must decide early in the new year whether to allow debt to rise beyond $16 trillion. Obama has pledged to work for a plan that would reduce the national debt level over a period of years, but he has been unable to reach an agreement on that issue with his political opponents.

    Wrangle over deficit and debt 

    Former Treasury Department official Kent Smetters says a key reason for the growing debt is the spending obligations the government has on old-age pensions and medical care for the elderly and poor.  Smetters, who now teaches economics at the Wharton School of the University of Pennsylvania, says the “fiscal cliff” debate is a chance to rethink federal spending overall.

    He says "the real cliff" is the mounting level of debt that discourages investors.  Smetters says Washington must make comprehensive reforms on spending and taxes with laws crafted to encourage economic growth. 
     
    Pressure on the president and congressional Republicans to force themselves to agree on these issues increased after the election, when the Fitch financial rating agency said it might reduce the credit rating for U.S. financial instruments unless there is a debt compromise.  Such actions already have been taken or threatened by other rating agencies.

    Fitch said political leaders from both major U.S. parties must work out a "credible" plan for deficit reduction, and find a way to raise the legal limit on government borrowing. 
     

    You May Like

    Turkey, US Splits Deepen Over Support for Kurdish Militants

    Ankara summons American ambassador to protest remarks by State Department spokesman who said Washington does not consider Syria's Kurdish Democracy Union Party (PYD) a terrorist organization

    Obama Seeking $19 Billion for National Cybersecurity

    Move, touted as attempt to build broad, cohesive federal response to cyberthreats, calls for increase in cybersecurity spending across all government agencies

    Video Foreign Policy Weighs Heavy for Some US Voters

    VOA talks to protesters in Manchester, New Hampshire, who sound off on foreign policy issues such as the Guantanamo Bay prison, the Israeli-Palestinian conflict and the wars in Iraq, Syria and Yemen

    This forum has been closed.
    Comment Sorting
    Comments
         
    by: Tauseef from: Pakistan
    November 14, 2012 11:16 AM
    If this is really the number one issue that the US is facing, then I am happy the U.S has a leadership that is trying to unravel the tangle before Jan 1, 2013. Hope, things works out well for the U.S and hence for the rest of the world.

    Also, I have a greater degree of trust on Barack Obama to sort it out than any other leader.

    by: Rob Swift from: Great Britain
    November 08, 2012 5:15 PM
    All our economic theories (Freidman (moneterism), Keynes etc) have vanished and lost all credibility. The entire issue is not a function of money at all. As the lights go down on the planet remember that all economic activity is at the cost of the ecology, and that is on the blink. What drives the entire (historical) process wants it gone and replaced. President Obama has done well to keep it all going.
    In Response

    by: J Nelson from: NY
    November 09, 2012 11:19 AM
    Im trying to see the real down side , we are still in a recession. In fact at this point No One wants to say it But its a Depression. ( just a controled one) CUT spending ? increase Taxes ? wow theres a thought . should have happened 10 yrs ago. I can see where this Might upset both sides . the rich might get taxed higher and the lazy might not get a welfare check Boo HOO .

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Valentine's Day Stinks for Lebanese Clownsi
    X
    February 09, 2016 8:04 PM
    This weekend, on Valentine's Day in Lebanon, love is not the only thing in the air. More than half a year after the country's trash crisis began, the stink of uncollected garbage remains on the streets. Step forward "Clown Me In," a group of clowns who use their skills for activism. Before the most romantic day of the year the clowns have released their unusual take on love in Lebanon -- in a bid to keep the pressure up and get the trash off the streets. John Owens reports from Beirut.
    Video

    Video Valentine's Day Stinks for Lebanese Clowns

    This weekend, on Valentine's Day in Lebanon, love is not the only thing in the air. More than half a year after the country's trash crisis began, the stink of uncollected garbage remains on the streets. Step forward "Clown Me In," a group of clowns who use their skills for activism. Before the most romantic day of the year the clowns have released their unusual take on love in Lebanon -- in a bid to keep the pressure up and get the trash off the streets. John Owens reports from Beirut.
    Video

    Video Rocky Year Ahead for Nigeria Amid Oil Price Crash

    The global fall in the price of oil has rattled the economies of many petroleum exporters, and Africa’s oil king Nigeria is no exception. As Chris Stein reports from Lagos, analysts are predicting a rough year ahead for the continent’s top producer of crude.
    Video

    Video Foreign Policy Weighs Heavy for Some US Voters

    VOA talks to protesters in Manchester, New Hampshire who sound off on foreign policy issues such as the Guantanamo Bay Prison, the Israeli-Palestinian conflict, Middle East Affairs and national security.
    Video

    Video 'No Means No' Program Targets Sexual Violence in Kenya

    The organizers of an initiative to reduce and stop rape in the informal settlements around Kenya's capital say their program is having marked success. Girls are taking self-defense classes while the boys are learning how to protect the girls and respect them. Lenny Ruvaga reports from Nairobi.
    Video

    Video New Hampshire Voters Are Independent, Mindful of History

    Once every four years, the northeastern state of New Hampshire becomes the center of the U.S. political universe with its first-in-the-nation presidential primary. What's unusual about New Hampshire is how seriously the voters take their role and the responsibility of being among the first to weigh in on the candidates.
    Video

    Video Chocolate Lovers Get a Sweet History Lesson

    Observed in many countries around the world, Valentine’s Day is sometimes celebrated with chocolate festivals. But at a festival near Washington, the visitors experience a bit more than a sugar rush. They go on a sweet journey through history. VOA’s June Soh takes us to the festival.
    Video

    Video 'Smart' Bandages Could Heal Wounds More Quickly

    Simple bandages are usually seen as the first line of attack in healing small to moderate wounds and burns. But scientists say new synthetic materials with embedded microsensors could turn bandages into a much more valuable tool for emergency physicians. VOA’s George Putic reports.
    Video

    Video Bhutanese Refugees in New Hampshire Closely Watching Primary Election

    They fled their country and lived in refugee camps in neighboring Nepal for decades before being resettled in the northeastern U.S. state of New Hampshire -- now the focus of the U.S. presidential contest. VOA correspondent Aru Pande spoke with members of the Bhutanese community, including new American citizens, about the campaign and the strong anti-immigrant rhetoric of some of the candidates.
    Video

    Video Researchers Use 3-D Printer to Produce Transplantable Body Parts

    Human organ transplants have become fairly common around the world in the past few decades. Researchers at various universities are coordinating their efforts to find solutions -- including teams at the University of Pennsylvania and Rice University in Houston that are experimenting with a 3-D printer -- to make blood vessels and other structures for implant. As VOA’s Greg Flakus reports from Houston, they are also using these artificial body parts to seek ways of defeating cancerous tumors.
    Video

    Video Helping the Blind 'See' Great Art

    There are 285 million blind and visually impaired people in the world who are unable to enjoy visual art at a museum. One New York photographer is trying to fix this situation by making tangible copies of the world’s masterpieces. VOA correspondent Victoria Kupchinetsky was there as visually impaired people got a feel for great art. Joy Wagner narrates her report.
    Video

    Video German Artists to Memorialize Refugees With Life Jacket Exhibit

    Sold in every kind of shop in some Turkish port towns, life jackets have become a symbol of the refugee crisis that brought a million people to Europe in 2015.  On the shores of Lesbos, Greece, German artists collect discarded life jackets as they prepare an art installation they plan to display in Germany.  For VOA, Hamada Elrasam has this report from Lesbos, Greece.
    Video

    Video E-readers Help Ease Africa's Book Shortage

    Millions of people in Africa can't read, and there's a chronic shortage of books. A non-profit organization called Worldreader is trying to help change all that one e-reader at a time. VOA’s Deborah Block tells us about a girls' school in Nairobi, Kenya where Worldreader is making a difference.
    Video

    Video Genius Lets World Share Its Knowledge

    Inspired by crowdsourcing companies like Wikipedia, Genius allows anyone to edit anything on the web, using its web annotation tool
    Video

    Video In Philippines, Mixed Feelings About Greater US Military Presence

    In the Philippines, some who will be directly affected by a recent Supreme Court decision clearing the way for more United States troop visits are having mixed reactions.  The increased rotations come at a time when the Philippines is trying to build up its military in the face of growing maritime assertiveness from China.  From Bahile, Palawan on the coast of the South China Sea, Simone Orendain has this story.