While the U.S. economy is en route to go over the fiscal cliff on January 1, Congress has made little headway in the process of reaching a solution, though there were indications of compromise over the weekend. Unless some compromise is reached, the American people will experience an onslaught of tax increases and spending cuts that the Congressional Budget Office says will set the economy on a downward spiral.
The fiscal cliff refers to the terms of the Budget Control Act of 2011 that are set to go into effect at the start of 2013, as a result of the deficit super-committee’s inability to produce a deficit-cutting agreement last year. In the end, Congress came up with a plan that included nearly $1 trillion in cuts to agency budgets over the course of a decade, and required automatic cuts, dubbed a “sequester,” of an additional $1 trillion.
The Washington Times explains, “Not only would taxes increase but ‘deep, automatic cuts’ would be applied to over 1,000 government programs — including Medicare and the defense budget.”
According to the Congressional Budget Office, the scheduled changes will have a disastrous effect on the economy. The CBO released its analysis in its annual summer budget update, reporting, "The sharp increases in federal taxes and reductions in federal spending that are scheduled under current law to begin in calendar year 2013 are likely to interrupt the recent economic progress."
By the CBO’s estimate, that fiscal tightening will probably lead to a recession in 2013 and to an unemployment rate that remains above eight percent through 2014.
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