How frightening is the fiscal cliff?

November 13, 2012

Nov. 13, 2012            Jay Kaplan
 
The so called "fiscal cliff," a $600 billion tax increase scheduled to take effect along with mandatory spending cuts at the start of the new year, could be one of the most important economic events for any president in the last 70 years, says Jay Kaplan, an economics instructor at CU-Boulder.

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How frightening is the fiscal cliff?

Nov. 13, 2012            Jay Kaplan

The so called "fiscal cliff," a $600 billion tax increase scheduled to take effect along with mandatory spending cuts at the start of the new year, could be one of the most important economic events for any president in the last 70 years, says Jay Kaplan, an economics instructor at CU-Boulder.

CUT 1 “Fiscal cliff is a tremendous change in government spending and taxes that are going to take place at the end of this year. (:07) So for our next president this is probably the biggest economic event since World War Two ended, or at least during World War Two.” (:15)

Unless the president and Congress can agree on a deficit reduction we will see tax increases due to the expiration of the Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010 and the spending reductions under the Budget Control Act of 2011. Kaplan says if this happens we risk sending the country into another recession.

CUT 2 “You put it all together the cut in GDP could be anywhere from about 5 to 7 percent from its current level. (:07) There would be a tremendous hit to economic activity, which I doubt the economy, on its own, could handle very capably – probably pushing us into another recession.“ (:18)

The effect on spending will be significant if the cliff is not avoided. $110 billion will be cut from the budget every year from 2013 to 2022, split evenly between defense and non-defense discretionary spending.

 

-CU-

 

 

 

 

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