What Is The Fiscal Cliff And How Will It Impact Young Americans?
Update: Young people around the country have been speaking out on the fiscal showdown. Check out this roundup of blog posts and see what it means to them.
The fiscal showdown, or fiscal cliff, is the term for a perfect storm of economic occurrences, set to occur if Congress can’t agree to a budget deal by the start of 2013.
What is the fiscal cliff?
Two main events will happen at the end of this year if Congress fails to intervene:
- Nearly every tax cut enacted since 2001, including the Bush-era cuts to income taxes, will expire, and;
- An automatic reduction in government spending totaling $1.2 trillion over 10 years and $65 billion in spending cuts in 2013 alone, would take effect.
Or, here’s how Colorlines puts it: “The fiscal cliff was a gun that the president and Congress pointed at their own heads, in order to force themselves to deal with the country’s longterm debt.”
(So why shouldn’t we call this a “cliff?” Because that implies a drastic, one-time free-fall when, in reality, the cuts would take effect over the course of nine years. Instead, try calling it the fiscal showdown, fiscal obstacle course, or even the fiscal waterslide.)
How did we get here? It starts in 2001, as New York Magazine notes:
President George W. Bush signed a massive round of tax cuts. The tax cuts were supposed to expire ten years later, in 2011. President Obama later extended the expiration date to January 1, 2013. After that, your rates will go back up to the rates you paid in 2001. A bunch of other tax changes, like the expiration of a “payroll tax holiday” and the elimination of some tax credits, will also hit on January 1, meaning that no matter how much you pay now, you’ll probably pay more after the new year unless there's a deal.
This is coupled with another issue: the national debt ceiling, which we could reach in early 2013. Last year, Congress increased the debt ceiling by $2.4 trillion, enough to insure the government could operate through the November election.
What terms should I know?
Fiscal Showdown — The convergence of a handful of expiring tax cuts that would result in the average household paying $2,000 to $3,000 more in taxes each year and scheduled spending cuts of $1.2 trillion that would hit defense and domestic spending across the board.
Sequestration — The $1.2 trillion in automatic spending cuts agreed to as part of the Budget Control Act in 2011. The cuts are scheduled to begin in 2013 and end in 2021 and will be evenly divided over that period. In the first year, we will see $109 billion in cuts split between defense spending and discretionary domestic spending with spending on entitlements like Social Security and Medicaid largely untouched.
Debt Ceiling — The federal government spends more money than it takes in and must make up the difference by borrowing money. Ever since 1917, Congress has limited the amount of money the federal government can borrow with a “debt ceiling.” While the economy recovers, the first priority must be sustaining the programs which people rely on to get back on their feet and help strengthen the middle class, not rash cuts that would balance the budget at the cost of crippling middle class families. Such an approach could harm the economy and even sending it back into recession.
How will this impact me?
Considering all that is included in the fiscal cliff, the expiration of the Bush Tax Cuts for the middle class, the end of the temporary, two percent reduction in payroll taxes that the Obama administration passed, and the expiration of the long term unemployment benefit extension, and it’s clear that this will have a major impact on middle class families. A tax increase would make it even harder for parents to send their kids to college and young graduates to get their feet on the ground and begin their own successful careers.
As if this wasn’t enough, the spending cuts from the sequestration will hit Medicare, the Federal Emergency Management Agency, and education funding just to name a few areas. Adding it all up, failure by Congress to act would mean taking about $800 billion out of the economy next year alone. Such a severe shock could send the economy back into a recession, driving unemployment back up and erasing so many of the gains middle class families have made over the last four years.
Young people should be especially concerned because this is the kind of economic event that would ripple across generations and only add to the hurdles Millennials already face in earning a college degree, achieving financial independence, and beginning a successful career. Taking a huge bit out of family incomes means that the constantly rising cost of college will be even more challenging for families to tackle and the 37 million borrowers that have had to take out student loans to pay for school will continue to grow even more.
Our elected leaders must understand the critical juncture the country is at and take swift and decisive steps to see that action is taken now. Americans want common sense tax reform that eases the burden faced by middle class families and requires the wealthy to pay their fair share is put in place and a firm commitment to continue investing in the vital programs that have helped so many families and young people to succeed.
Millennials are the future of the country and we must do everything we can to help them succeed today so they can lead tomorrow.
Brian Stewart is the communications manager at Campus Progress. Abraham White is a communications associate at Campus Progress. Follow him on Twitter @abwhite7.
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