The Fiscal Cliff
By Randall Holcombe • Friday November 30, 2012 8:46 AM PDT • 4 Comments
Despite the dramatic terminology and a flood of news stories, the economy is not about to go over a fiscal cliff. The fiscal cliff is a change in the budgetary status quo that will occur if no agreement is made to stop it. We would go back to a Clinton-era tax structure and have substantial cuts in federal expenditures. How bad would that be, if it actually happened? But there’s no need to even consider that question seriously, because it will not happen.
Even if no agreement is made by the end of the year, one will be made soon after, because none of our politicians want the fiscal cliff to become our new status quo; that is, they don’t want those tax increases and spending cuts.
The real problem the fiscal cliff presents to the economy is uncertainty. People make more timid business decisions when they are uncertain about future tax rates and future expenditures on government programs. The fiscal cliff hurts us not because we might fall off it, but because we know that changes are imminent that will keep us from falling off; we just don’t know what those changes will be.
Part of the uncertainty is that we don’t know how far any agreement that is made will actually go toward addressing the serious fiscal issues we face. We have seen time and time again that rather than actually addressing structural problems in the federal budget, Congress and the president are satisfied just to kick the problem further down the road. That’s what produced the fiscal cliff in the first place.
Tags: Budget and Tax Policy, Economics, Politics, Taxation 
I say the Republican House and Senate should give the Dems exactly what they want, let them propose whatever deal they want, and all Republicans vote “Present.” The only way to force the Democrats and the media to own this mess they’ve made is to hang it around their heads… otherwise no matter what the Republicans do to compromise the narrative will be that they were obstructionists. The American People voted for this nonsense – let them have it!”
Maybe if we sink the country now, we can start to save it in the next election. but we need to fix the voter fraud problem. Until states have a state voter I.D. card AND a state Picture I.D. or picture drivers license, you will never have nothing but voter fraud! where I voted I had to show both, If this had been the law of the land I don’t think Obama would of won and I think more people would of voted because our present voting system is a joke!
T R Ester | Nov 30, 2012 | Reply
“Part of the uncertainty is that we don’t know how far any agreement that is made will actually go toward addressing the serious fiscal issues we face.”
You don’t? I do–NONE.
Tom E. Snyder | Nov 30, 2012 | Reply
Besides despising the lying politicians, I also despise the mass media for its widespread use of the idiotic “fiscal cliff” phrase, and their complete misrepresentation of the issue. Their obvious goal is to convince the general public that Obama’s requested tax rate increases must occur.
MingoV | Nov 30, 2012 | Reply
This is simply the next act in the D.C. Political Theater. Melodrama which represents “drama” only to those under the age of ten. The U.S. government is going to continue spending more and more. That will not stop. It’s how politicians buy votes. It’s worked for generations so it’s not going to stop. They will continue to take more and more from those who produce wealth, until those wealth producers (as they have done in other countries for many many years) decide they’ve had enough and move their operations to more accommodating shores. There will be no debt reduction. Do you recall the last “showdown” in debt reduction? Do you recall the result of the agreement in the last debt reduction “showdown”? It increased the debt. That’s “debt reduction”, D.C.-style.....and it’s going to happen again.
Tom | Nov 30, 2012 | Reply