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Fiscal Cliff Primer: Understanding The Battles, What’s At Stake

U.S. Speaker of the House John BoehnerU.S. Speaker of the House John Boehner said Republicans are committed to continuing to work with the president to come to an agreement to avert the so-called fiscal cliff. Photo by Win McNamee/Getty Images

Behind closed doors, the talks continue.

But negotiations between White House officials and congressional leaders on the so-called “fiscal cliff” seem to be going nowhere.

And at the center of it all: tax rates, revenue and a looming Dec. 31 deadline.

What happens after that date? More than $500 billion in tax increases for almost every taxpayer and sweeping spending cuts are scheduled to take effect for the 2013 fiscal year. That is, unless President Obama and the opposing Republicans can reach an alternate deal to reduce the deficit.

But the two parties can’t seem to agree on a solution. While both sides say they will agree to spending cuts, there are big differences on how much should be on the chopping block. At the moment, there’s a big divide over taxes: the president is calling for an increase in taxes on wealthy Americans and extending tax cuts to families making $250,000 or less. Meanwhile, Republican leaders are pushing back against this plan, with an emphasis on closing loopholes and deductions.

There’s also a lot of talk about a “grand bargain” to serve as a compromise between the two parties, which would bring substantial changes to programs like Social Security, Medicare and Medicaid.

But Senate Majority Whip Dick Durbin, speaking Tuesday at the liberal think-tank Center for American Progress, said that Social Security should be off the table in fiscal cliff negotiations.

“Progressives should be willing to talk about ways to ensure the long-term viability of Social Security, Medicare and Medicaid, but those conversations should not be part of a plan to avert the fiscal cliff,” he said.

While the political problem-solving remains stagnant, Obama is taking his pitch to the public.

He’s seeking support for his plan beyond Washington. He met with small business owners Tuesday and middle-income families on Wednesday.

President Obama addresses fiscal issues at the White House Wednesday, expressing his optimism that Congress will be able to agree upon a framework to get the America’s long-term deficit under control.

Senate Republican Leader Mitch McConnell says that instead of trying to work out an agreement with lawmakers, Obama is “back out on the campaign trail.”

With just over a month left in possible negotiations, Obama and Congress will have to move fast to come to a compromise.

But just what is the so-called fiscal cliff, beyond the shorthand references you hear and read? And is it in fact an impending crisis? What might be some options for dealing with it?

Here are some links to help provide a better understanding of the issues at stake:


The fiscal cliff is not just about the Bush-era tax cuts or defense spending cuts. The payroll tax cut, the debt ceiling, unemployment insurance and the alternative minimum tax may all get wrapped into negotiations. Washington Post’s Wonkblog details the term and its implications:

The Washington Post boils down absolutely everything you need to know about the fiscal cliff, in this FAQ post.

New York Times has its own basics here.


For a breakdown of the fiscal-cliff’s components and who it impacts, investment advisor company LJPR put together this chart.

The Wall Street Journal also takes a look at the politicians and their proposals for a resolution in A View of the Fiscal Cliff Drama in Graphics.


How dangerous is the risk of not getting a deal done by Jan. 1?

Many politicians, a number of economists and a fair number of CEOs and business leaders who are involved with the Fix the Debt Campaign warn it could trigger a recession if it drags out too long.

But there are voices who say the dangers are less immediate and that a bad deal is worse than no deal at all. Paul Krugman of the New York Times is among them.

Michael Lind also wrote a blistering attack in Salon.com.

There are some conservatives who also warn of compromising too much on taxes to get a deal. Grover Norquist of Americans for Tax Reform is chief among them.

Patrick Buchanan laid out a scenario where Speaker of the House John Boehner and Republicans should resist the president’s plans on taxes and take a chance and go “over” the cliff.


What does all this politically charged economic jargon really mean for the American people?

NPR’s Morning Edition explains in this report: Devil Is In The Definition Of Revenue.

Finally, the bipartisan Tax Policy Center spells out in this video how taxes may rise for individuals and families if a deal is not reached.

Jessica Fink contributed to this report.

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