Congress passed legislation Jan. 1 in an attempt to avoid the fiscal cliff, but negative economic effects are still a possibility.
This legislation was dubbed “The American Taxpayer Relief Act of 2012,” designed to lessen the impact of the fiscal cliff, which could have sparked another recession.
The fiscal cliff is the result of increased national taxes and federal budget cuts taking effect simultaneously. The budget cuts were set to begin at the same time the Bush Administration tax cuts were set to expire.
Most experts agree that an increase in government revenue and a decrease in spending would be crucial toward ending the recession. However, it would be detrimental for these changes to occur at the same time, according to Steven Greene, associate professor of political science.
Among other potential problems, a drop in consumer spending could occur and damage the economy if increased taxes and budget cuts were to occur at the same time.
While many believe the Taxpayer Relief Act helped the nation evade the fiscal cliff, there is still a lot of work left to ensure economic stability, according to Greene.
“[Congress] only dealt with half the equation,” Greene said. “Current levels of taxation were set to expire, and there would have been a fairly big tax increase on just about everybody. The bargain was to ensure that that tax increase only happened on the richest 1 percent of Americans, and as far as the cuts, they’ll give themselves two months to make a deal on a more appropriate budget before cuts take place.”
The future of the fiscal cliff’s role in our economy is unknown, and one could speculate endlessly about what might happen, according to Greene.
Greene also commented on the term “fiscal cliff” itself, saying it is not an accurate description of the circumstances.
“The fiscal cliff is a bad analogy because it sounds like there’s going to be irreparable damage,” Greene said. “If you fall off a cliff, you’re not coming back, and this situation is more like walking down a flight of stairs. You can step down, but you can also recover and come back up.”
Green also made a point to clarify another misconception surrounding the fiscal cliff. The term implies that effects of the fiscal cliff would have been immediate. In actuality, the economy would have been affected rather slowly.
The fiscal cliff could have other negative consequences as well, according to vice chancellor for research, innovation and economic development, Terri Lomax.
“The fiscal cliff affects people on a personal level because it has to do with taxes, but it also affects federal agencies and their budgets,” Lomax said. “Agencies have been cautious about releasing grants, so that means less opportunity for research.”