When I first wrote about what I called in June of this year, an Economic Cliff, I don’t think a lot of people really gave it any thought. There were too many election issues clouding the horizon. However, since June the Economic or Fiscal Cliff has become the number one issue facing the President and Congress. How did this happen?
Well, we have gotten so good at kicking the can down the road that sooner or later there might be a bump in the road where all the cans stick and January 1, 2013 is that bump. When I wrote my short article on June 14, 2012, the National Debt stood at $15,739,094,806,303.00. Guess what, it has now grown to $16,256,341,693,911.00 and yes, the difference is $517,246,887,608.00. In approximately five months we have amassed almost one half a trillion dollars in new debt and I am not sure that either the Congress or the President has a solid plan to reduce the debt. However, what ought to stagger the American voters into shock is the interest on the National Debt at its current level. When the government fiscal year ended as of September 30, 2012, the interest was $359,796,008,919.49. Yes, that is right and it is not a misprint. It is costing the American taxpayers $359 billion dollars to carry a National Debt of $16 trillion dollars. And the debt is growing.
So part of the Fiscal Cliff is a mandatory $1.2 trillion dollars in automatic cuts that were approved as part of the Budget Control Act in August of 2011! These cuts are split evenly between defense and non-defense spending. Compounding the problem is the statutory limit on the current government debt ceiling that was set by the Budget Control Act at $16,394,000,000,000. So folks, we have about $138 billion dollars and we are back at the limit again and Congress will have to re-address the debt ceiling issue all over again. It is estimated that we will reach the debt ceiling limit around January 1, 2013.
Whether you agree or disagree with the Bush Tax cuts that were passed several years ago, our economy has adjusted to their implementation. These tax cuts expire on January 1, 2013. Of course, no one is sure that the “2% payroll tax Holiday” will continue beyond the end of the year. In addition, the Federal unemployment tax benefit extension that Congress kicked down the road a year ago in January of 2011 also will come due on January 1, 2013.
The issue gets more complicated as even the President has pointed out that we need both a reduction in spending as well as increase in revenue – commonly called taxes! For a Congress that has been split along party lines and has passed the least amount of legislation in its history in the past year, this will be a real challenge. For the sake of our struggling economy, I sincerely hope that the politicians can put aside their special interests and party bickering and that the Congress will be able to work with the President for the betterment of our nation. If not, we could be going over an economic or fiscal cliff never before seen in our country. There is no kicking this can down the road.