Here's a quick study on the fiscal cliff
"The fiscal cliff:" Sounds pretty scary, doesn't it? Indeed, some commentators suggest that if we "go over the cliff" at year's end, the nation will be plunged back into recession, with unemployment soaring over 9 percent.
Here we'll try to decipher the jargon, understand the root of the matter, and look at the prospect for solutions.
Question. Just what is meant by "the fiscal cliff?"
Answer. Two things. First, automatic income tax hikes for both the middle and the upper classes, reverting back to the rates on taxable income in effect during the presidency of Bill Clinton (39 percent for top earners, as opposed to 35 percent right now). Second, automatic, and deep, across-the-board cuts of federal programs including Medicare and Medicaid and the military but excluding Social Security
Q. Who set this up? Was it President Obama? The Congress? Is just one political party behind this -- and if so, which one?
A. One thing at a time. The automatic tax hikes will come from legislation passed under the administration of President George W. Bush. The cuts in the marginal tax rates for all Americans were proposed by the Bush White House and passed by Congress in two legislative acts, in 2001 and 2003.
The cuts were legislated as temporary, not permanent. An expiration date of Dec.31, 2012, was established for the cuts. If Congress does nothing legislatively to stop or amend the process, the cuts will automatically expire and taxes will go up Jan.1 -- for all income levels except those who do not earn enough to be assessed.
The second part of the fiscal cliff involves what's called "sequestration." By this is meant hefty across-the-board reductions in federal spending, resulting in savings of $1.2 trillion over a period of the next 10 years as a way of paying down our federal deficit, which now stands at $16 trillion.
"Sequestration" was set up as an alternative to a legislative compromise on deficit reduction which President Obama and Speaker of the House John Boehner, a Republican, had attempted to negotiate. A majority of both Republicans and Democrats in Congress signed off on sequestration after deficit-reduction talks between the president and the speaker broke down.
Q. What were Obama and Boehner trying to achieve? And why did they fail?
A. Their goal went by the moniker "the grand bargain." Obama and Boehner, who played golf together as an ice-breaker to their negotiating process, were aiming to agree on revenue hikes from either tax hikes or the closing of tax loopholes and also cuts in federal spending that would amount, together, to $4 trillion in debt reduction over 10 years.
However, their talks broke down. Democrats and Republicans blame each other for the breakdown. The long and short of it is that the Republicans wanted the debt reduction to consist almost entirely of cuts in federal spending and the Democrats wanted to achieve reduction through fewer cuts and more increased tax revenue.
Q. So what are prospects today for a compromise that will avoid having our economy go over the fiscal cliff and send us hurtling toward a second recession?
A. It's been reported that both the president and 60 percent of our members of Congress believe we can and should achieve a compromise to avert going over the cliff.
Speaker Boehner has spoken of a Republican readiness to accept additional tax revenues, though largely through closing loopholes. And President Obama has said he's ready to compromise but will not agree to let middle-class Americans pay down the deficit through reductions in social programs while the top 2 percent of income earners pay not a dime more in taxes.
So we can only watch -- and pray.
John Patrick Grace formerly worked for The Associated Press in Chicago, New York and Rome. He is now a book editor and publisher based in Huntington