By Maya MacGuineas
Special to The Washington Post
At the end of the year, the country faces an abrupt series of broad tax increases and blunt cuts to most federal programs unless Congress and the White House act. Most policies that have set up the fiscal cliff, a term coined by Federal Reserve Chairman Ben Bernanke, were never really intended to take effect. Some were designed to try to nudge lawmakers to find longer-term solutions to reduce the nation's unsustainable deficits. Let's set the record straight about what the fiscal cliff is — and how we can avoid it.
1. The fiscal cliff is mainly about defense cuts and the expiration of the Bush tax cuts.
A good amount of the attention that the fiscal cliff receives in the news media and on Capitol Hill focuses on defense spending cuts or the expiration of the George W. Bush-era tax cuts (which President Obama renewed in 2010). These do make up a large portion of the fiscal cliff: more than $500 billion in defense cuts and more than $2.7 trillion in tax increases over the next 10 years. But they're just the beginning of the cuts that would affect the economy.
For example, if lawmakers do not patch the alternative minimum tax, that tax threshold, which applies to 4 million people today, could ensnare nearly 30 million people, raising their tax bills by an average of $2,700. Additionally, non-defense discretionary cuts would hit programs for low-income people such as housing and energy assistance. And more than 2 million Americans would lose their federal unemployment benefits.
Additionally, going over the fiscal cliff would likely lead to a recession, causing further job losses.
2. It's okay to punt on the fiscal cliff for another year.
Some have called on lawmakers to postpone parts of the fiscal cliff by waiving the budget sequester or extending the tax cuts without offsetting the costs. As the end of the year inches closer, such calls are likely to increase.