The Free Press, Mankato, MN

State, national news

December 28, 2012

Fiscal cliff: the options for what could happen

— Efforts to save the nation from going over a year-end "fiscal cliff" were still in disarray as lawmakers returned to the Capitol to confront the tax-and-spend crisis. A tone-setting quotation was Democratic Sen. Harry Reid's assertion that the House under Republican Speaker John Boehner had been "operating with a dictatorship."

President Barack Obama flew back to Washington from Hawaii after telephoning congressional leaders from his Christmas vacation perch. Once back, he set up a meeting with leaders of both parties at the White House late Friday to make a fresh attempt to find a solution before Monday night's deadline.

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:

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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.

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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.

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