Fiscal cliff is a series of tax increases and budget cuts. It has been on all over the news as both Republicains and Democrats tried to stop it from happening. So what is it really?
When George W Bush was president, he introduced tax cuts ("Bush tax cuts"), meaning more money in the pocket and happy people. They are set to expire on 2013. In 2011, the US debt ceiling was raised and with a current $16 trillion debt, the US government agreed to cut $1.2 trillion to compensate for the current budget deficit over the next decade. With the tax cuts expiring and government spending reduced, government department workers will have less pay or be made reduntant while people are having higher taxes. This will cause less spending and the US economy is set to fall like a cliff which is why it's called a fiscal cliff. To think that the US is already in recession, the fiscal cliff will cause the US to go into deeper recession with the budget cutting 50% of government programs and 50% of defence. This will also cause a loss of a million jobs over the next two years.
The fiscal cliff was caused by the House of Representatives (Republican majority) to not allow the debt ceiling to go any higher without any agreement to cut any spending in mid 2011.
The Democrats wanted to extend tax cuts to all Americans except the wealthy. The Republicans wanted tax cuts extended to all Americans and claimed that the Democrats are heavily taxing the wealthy who are providing jobs. President Obama has cut short his holiday to Hawaii to try to solve this problem. The Senate (Democrat majority) had passed it's proposal but the House of Representatives (Republican majority) are holding their ground prevent President Obama from passing his proposal to stop the fiscal cliff. Both sides must agree on a compromise to prevent the fiscal cliff from automatically happening in 1 January 2013 (NZ time).