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-