[POLITICS]<br />
What Is the âFiscal Cliffâ Anyway?

Fiscal cliff ahead: What it may mean!

Now that the big election is over, all the talk in the media has shifted to something called “the fiscal cliff.”  It’s being described as a crisis of epic proportions and yet another standoff between President Obama and House Republicans.  So...what is it?

First of all, it’s important to understand that the “fiscal cliff” is a politically manufactured crisis and that it isn’t actually a cliff at all.  It’s more like “steps” or as MSNBC’s Steve Kornacki explained, a “fiscal slope.”  Thus, the breathless coverage in the media is somewhat misleading.  If a deal between House Republicans and the president isn’t reached by the deadline on December 31st, rest assured that the end of the world is not upon us.

However, a few things will happen on this much talked about December 31st deadline.  First, the Bush tax cuts will expire.  All of them.  At the same time, as a result of the sequestration deal last year, spending cuts also are triggered.  Non-partisan experts warn that this combination of tax increases and spending cuts could send the economy back into another recession if left unresolved.

Ordinary Americans would feel an impact from the tax increases immediately, as payroll taxes and the alternative minimum taxes go up. The unemployment rate could go back up to over 9% and economic growth could be reduced by 0.5%.  And, of course, the stock market would not react kindly to this level of instability in the American economy.

This all sounds terrible right? Well, maybe not.  It’s also possible that after January 1st, with the expiration of the Bush tax cuts---including on those individuals making over $250,000---President Obama and Democrats will push for a new bill (or the one already passed by the Senate) which cuts taxes for everyone except high income earners.  Included in these discussions is a broader deficit reduction plan which curbs the severe sequestration cuts in order to blunt any damage to the economy and tackling long term debt.

The question remains whether the House Republicans can make a deal with the White House and the Senate.  The Senate has already passed a bill that keeps the tax cuts for Americans making under $250,000, but House Republicans so far are holding firm to their pre-election position and Speaker John Boehner is refusing to bring the Senate bill to a vote. 

President Obama and Democrats have previously compromised and agreed to keep all of the Bush tax cuts, making taxes on the wealthy a central component to their platform during the election.  With last week's victory came new leverage for Democrats and the White House in this round of negotiations. 

If President Obama and Democrats are willing to walk off the “cliff” in order to force Republicans into a deal, then last week’s election was a game changer.  If not, and Democrats compromise yet again, keeping the tax cuts for everyone including the rich, then there will be hell to pay on the president’s left flank.

Grab the popcorn.