kunc-header-1440x90.png
NPR for Northern Colorado
Play Live Radio
Next Up:
0:00
0:00
Available On Air Stations
NPR News

Fiscal Cliff Would Only Dent The Deficit

House Speaker John Boehner, seen last week, discusses the looming fiscal cliff.
Brendan Hoffman
/
Getty Images
House Speaker John Boehner, seen last week, discusses the looming fiscal cliff.

Virtually everyone agrees that allowing the nation to fall off the fiscal cliff would be a bad thing.

Government programs would be cut, taxes would rise significantly on a majority of Americans, and according to the Congressional Budget Office, the economy would fall back into recession.

But get this: Even if all of those things happen, there would still be a budget deficit.

When it comes to describing the fiscal cliff — that combination of tax increases and spending cuts that would automatically begin in January unless Congress and the president step in — federal budget guru Stan Collender turns to superlatives.

Expiration of tax cuts that were started under President George W. Bush "would clearly constitute one of the biggest tax increases ever imposed on taxpayers in American history," says Collender, who works at Qorvis Communications.

According to one analysis, ending the Bush-era tax cuts would cost the average household $3,500 a year.

And then there's the other side of the fiscal cliff: what's known as sequestration — about $110 billion in automatic across-the-board spending cuts that would hit everything from schools to weapons systems every year for the next decade.

"That would be the single largest one-year reduction, nominal reduction, in the deficit in American history," says Collender.

This would take a significant bite out of what would be a $1 trillion deficit. Still, the government would spend more than it takes in.

The Congressional Budget Office projects a $641 billion budget deficit for the fiscal year that started Oct. 1 — and that's assuming the fiscal cliff actually happens and is in effect for three-fourths of the fiscal year.

It's "a big, big, big, big, big number," says Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

But here's the thing — you'd be hard-pressed to find a politician or economist or even deficit hawk like MacGuineas who thinks letting the nation go over the fiscal cliff is a good idea.

"It's true that it's done in the absolute wrong way, but it's still not even big enough to start to tackle the fiscal problems that we have," MacGuineas says.

Now let's imagine Congress wants to extend the tax cuts: You can add nearly $250 billion to the deficit for this fiscal year. Do that for a decade and it will add more than $5 trillion in debt.

You might be thinking this could be solved by letting taxes go up on those making more than $250,000 per year.

Think again. That only shaves about 20 percent off the bill.

Avoid the painful cuts of the sequester — you can add more than $1 trillion to the debt over the next 10 years.

And now you're talking about a big, big, big, big, big number.

Copyright 2020 NPR. To see more, visit https://www.npr.org.

Related Content
  • From higher payroll taxes to automatic cuts in military spending, the looming budget crisis could drag the economy back into recession and create turmoil in the financial markets, economists say. To better understand what's at stake, have a look at some of the key phrases involved in the crisis.
  • Host Rachel Martin talks with historian Robert Caro, who has studied the use of power and how presidents leverage power in crisis. He draws some comparisons between his famous subject, Lyndon B. Johnson, and President Obama's second-term challenges.
  • Host Scott Simon talks with New York Times op-ed columnist Joe Nocera about the efforts to overhaul America's tax system and prospects for reaching a compromise before the end of the year, when automatic tax hikes and spending cuts are set to go into effect.
  • President Obama and House Speaker John Boehner both made their opening bids Friday on how to deal with tax, spending and debt problems. Their proposals sound strikingly familiar, but Obama says this time he has proof the majority of Americans agree with his approach to taxes.