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Fiscal Cliff Origin

Why Congress Created the Problem


The fiscal cliff origin has its roots in the failure of President Barack Obama and Congress to reach a compromise on taxes and spending in 2011. The fiscal cliff itself was intentionally designed to increase taxes and cut spending automatically through sequestration if lawmakers failed to act on deficit reduction and the Bush tax cuts before 2013.

First Reference to Fiscal Cliff

The term fiscal cliff did not originate with the broad tax increases and automatic spending cuts set to take place in 2013. The term has been used throughout American politician history to instill fear among policy-makers and the public over the federal government's spending and the national debt.

In 2008, several years before the term fiscal cliff became a household term, Republican U.S. Sen. Jim DeMint of South Carolina warned of such a financial calamity if lawmakers didn't address taxes and spending.

"Instead of budget surpluses on the horizon, a looming fiscal cliff is much closer than anyone would have thought possible," DeMint wrote in a statement posted on his official Senate website.

Fiscal Cliff Origin

The origin of the fiscal cliff set to take place in 2013 has its roots in a disagreement between Obama and Congress two years earlier over how to deal with the nation's growing debt and costly tax cuts on the wealthiest Americans. At the time, the United States was rapidly approaching its debt ceiling, a statutory limit on borrowing, and was in serious jeopardy of defaulting. The disagreement led to a credit rating downgrade.

Congress narrowly avoided a default by raising the debt limit in August 2011 by passing the Budget Control Act, which directed more than $2 trillion in spending cuts over a decade and created a so-called Super Congress to come up with a permanent, long-term solution to the debt. The Super Congress was created, though, with the stipulation that if it failed to reach an agreement there would be drastic spending cuts and automatic tax increases in 2013.

Super Congress Role in Fiscal Cliff

The Super Congress, or Joint Select Committee on Deficit Reduction, was made up of six members of both the House and Senate. The panel was evenly divided between Republicans and Democrats. The House members were chosen by Speaker John Boehner and Minority Leader Nancy Pelosi. The Senate members were chosen by Majority Leader Harry Reid and Minority Leader Mitch McConnell.

The same partisanship that hampered the broader negotiations over taxing and spending between Obama and Congress also crippled the Super Congress, and no deal was ever reached by the select panel. Lawmakers maintained the automatic spending cuts were initially approved as a way to force Congress and the president to reach an agreement.

Role in the 2012 Election

The fiscal cliff played an important role in the 2012 presidential election, in which Obama easily won a second term in the White House.

The 2012 Republican presidential nominee, Mitt Romney, described the automatic spending cuts known as sequestration a "strange proposal" and promised to cancel them if elected because he believed reductions in military spending amounting to more than $1 trillion over a decade would be disastrous.

Grand Bargain Elusive

Republicans and Democrats in Congress could not agree on how to handle the so-called entitlement programs: Medicare, Medicaid and Social Security. Democrats who resisted such cuts would agree to them if Republicans, in return, sign off on higher taxes on certain high-income wage-earners much like the Buffett Rule would have imposed.

Debate over the fiscal cliff continued beyond the 2012 presidential election and mid-December of that year as many Americans, particularly those in the middle class, grew anxious about their taxes going up in 2013. Public-opinion polls consistently showed Americans were blaming Republicans for the stalemate.

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