The Fiscal Cliff

Category: Blog

What happens if we go “over” it?

In the summer of 2011, President Obama and Congress reached an impasse over government spending and taxation. The Republican-controlled Congress refused to raise the US government’s borrowing limit (the “debt ceiling), which is set by statute, but has been revised many times over its 94-year history. Congress insisted on over one trillion in spending cuts in exchange for raising the debt ceiling.

To try and break the stalemate, Congress passed the Budget Control Act of 2011. The act set up a bi-partisan committee to deal with the federal debt and deficit by finding ways to cap US government spending over the next 10 years and make $1.2 trillion in spending cuts. The same act required that, if the committee failed to come up with a plan to agree on these measures, beginning in January of 2013, there would be automatic, across-the-board cuts to be split between domestic programs and defense. The committee failed to agree upon a plan. (Ben Bernanke, chairman of the Federal Reserve, used the term “fiscal cliff” in a speech before Congress in February of this. The name stuck.)

The Bush tax cuts also expire in January of 2012, as does the extension of unemployment benefits and the one-year reduction in payroll taxes.

Derek Thompson, a senior editor at The Atlantic, summarizes data from the Congressional Budget Office:

“…spending cuts and tax changes will push the U.S. economy into a recession in the first six months of 2013, according to the Congressional Budget Office. Unemployment would rise to 9%. Real GDP would decline by about 3% in the first half of 2013. That’s a certain double-dip.”

Consider introducing the topic to students by first showing them the following four cartoons representing different points of view.

Ask students what they notice about each cartoon and what each cartoonist seems to be saying about the fiscal cliff and the impasse that led to it. Then ask students to read the article from the Atlantic and to examine the charts and graphs in the Washington Post article. Revisit the four cartoons. Ask students what more they can add to their interpretation of the cartoonist’s point of view. Ask them what more they would need to know to suggest what Congress and the President should do. (The first cartoon appeared in The Hill and the last three were collected by U.S. News.)

Posted by Maureen Grolnick

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