Hey Christmas celebrators: have a really, really merry one!
Because if the fiscal cliff situation still hasn't been resolved when you're opening presents, there's only about a week left till potentially catastrophic financial changes happen in America. Middle class families take a $2,200 tax hit, budget sequestration causes major cuts to federal spending, and the economy might get derailed by either and/or both of those things happening.
Now no one's 100% sure that letting all this happen would crush the economy, but traders are already beginning to sell some stocks short in anticipation of trouble. It could turn out to be the kind of thing where fear about fiscal cliff consequences creates actual fiscal cliff consequences.
One fiscal cliff danger is tax hikes, technically a cancellation of tax cuts from the Bush Administration. If no agreement happens, everyone's taxes go up. Republicans want to keep the cuts for everyone, while Obama wants to extend the Bush tax cuts for families earning less than a quarter million dollars each year, and let tax rates go back up for that upper 2% or so, to around the rates from when Clinton was at the controls.
Another fiscal cliff result would be spending cuts, which the Budget Control Act of 2011 requires across the board on January 2nd if Congress can't come to a bipartisan budget agreement. Republicans are asking for specific cuts to Medicare and Medicaid, believing that overtaxation to support those programs takes too much money out of the average American's wallet.
There's also a sort of red herring issue with the fiscal cliff, involving the federal debt ceiling. Obama wants to take control of it away from Congress, which Congress dislikes. Republican Mitch McConnell tried to bring the issue to a vote in the Senate as a political power play, but Senate Majority Leader Harry Reid called McConnell's bluff, allowed the vote, and forced McConnell to filibuster his own bill.
Wait, but why deal with a red herring issue at all? Shouldn't both sides just find common ground on spending and revenue, then do some horse trading and logrolling to tie up the other issues and complete a new budget deal?