

The fiscal cliff

On the edge


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The nice chart makes it clear that the problem is really one caused by the financial collapse of 2008. That is when spending had to go up to counter the downturn in revenues. Since then the two are moving in the right direction, but too slowly. What is needed now is not less spending but more revenue. This is clear from the high unemployment rate. If revenue goes up and spending comes down naturally in a gradual way things will be fine. Later when things are normalized if it is desired to lower revenues then taxes can be adjusted to do this. The present problem is the GOP refusal to increase revenues now when they are needed.

nombrilisme in reply to saagua

OK, how do you suggest we cover the next few years' 1.5 trillion+ deficits, a projected public debt of 23 trillion, and 50 trillion in unfunded liabilities with additional revenues? Honest question.

Todd T

There is no fiscal cliff, the fact that politicians are overspending, over borrowing, over taxing and over regulating is the problem. If the fiscal cliff happens most of that gets interrupted and the only suffering that will occur is politicians, bureaucrats and overpaid government union employees will lose out. Nothing wrong with this.

Still, the government has not actually reduced costs in who knows how many decades, no NOT growing as much as estimated is not a cost reduction and Clinton doubled spending the fact he could not spend it faster than americans could produce it does not change the fact he doubled spending, as did Bush and obama doing more than doubling in half the time.

Let the fiscal cliff come, it will be good for everyone but the government and the government is the problem, so we put the brakes on those morons in government while the rest of us can move on and do better. I call that a good deal.


It's rather frustrating that coverage of the fiscal cliff in the media is soooo one-sided.

I just saw this infographic which shows Obama strapped to some dynamite... http://ow.ly/gahDl

When will the Republicans get their share of the blame and take some responsibility?!!

Ken E Zen

America since the sixties with President Johnson's great Society and robbing Social Security for the first time, through President Jimmie Carter Unionizing Tax Paid Employees, through George Bush's incredibly bad spending and none realization of the terrible policy of Combining the Banks as well as not employing Constitutional and Capitalistic methods of reconstruction of the economy; then President Obama's continuation of Socialistic enterprise and governance and we have this mess.

Ok! How do we get out of it? Middle Class wages has been stagnant since the 1990's. We need big business manufacturing back!! Here are the reasons they give for manufacturing being gone!
1. 800 Federal Government Agencies harassing Big business. 2. Legal Vulturism Class Action suites. 3. Business Taxes 4. Union harassment 5. Wages

There are many States getting some business from overseas. With our Financial Crash, investment in America has picked up but, mostly land purchase. Mexico is getting all the manufacturing in this part of the world. Imagine a Country with violence, Drug gangs, Hezbollah and Corruption beyond belief and yet they are getting the manufactures. Honeywell, Goodrich, GE, Cessna, Boeing maintenance, and other are currently building in Mexico. Their GDP is great! Look at our list. We need to get real and be competitive.

Evil Overlord

The defense element of the graph answers most of the question in itself. Combine large defense cuts (real cuts, not reduction in increase) with higher taxes for everyone, and serious entitlement reform, and the debt will be gone in no time. Of course, pretty much any serious effort could resolve the debt, so it's seriousness that's in deficit.

KB720 in reply to Evil Overlord

I agree. However, I think the key element of your suggestion is the entitlement reform. We cannot continue to avoid this ever growing problem. Unfortunately, it is political suicide for them to do any substantial reform due to the largest beneficiaries of some of these programs (the baby boomers) also being one of the largest groups that goes out to vote.

Evil Overlord in reply to KB720

I certainly think entitlements are part of the problem. But any serious solution needs:
Defense cuts
Entitlement reform
Higher taxes
Addressing health costs

Looking at just any one of these issues is insufficient. And they all have aggressive, knee-jerk opponents, so any action will take courage - always in short supply in DC.

Nathan Isbell

Fiscal Wake Up Tour Challenge Entry

To: Mr. David Walker and the Fiscal Wake Up Tour Challenge Committee, http://www.indebted.com/the-challenge/






Merry Christmas 2012 ;)


Nathan J. Isbell
Gulf Shores, Al.

“Compound interest is the eighth wonder of the world.

greater than E=Mc2"

“The Most Powerful Force in the Universe is Compound Interest”
- Albert Einstein


The fiscal cliff is just dust in the eyes of the American people and rest of the world. Everybody knows that America will inflate out of debt. Shoebox apparments in Singapore already fetch more than a million.


America faces a "fiscal cliff" for an extaordinarly simple reason. We DON'T have what the rest of the world has:

1) A VAT tax of 20%
2) Gasoline taxes of $4.00 a gallon

Not saying that we SHOULD have these taxes, just that it is very difficult to balance any social welfare state without them.

Il Maestro

The Economist is just another repuke-oriented rag which calls Social Security an entitlement, but which is instead a fund paid for by workers over 30-40 years, or however long they work. It's got a separate funding system and a worth up in the trillion-dollar mark that the repukes and their masters, egged on by their greed and their repuke rags, would love to get their hands on so as to screw the rest of us. Restore taxes on million- and billion-dollar earnigs to what they were under Reagan, that great apostle of yours, get into fewer wars of choice and stop trying to eff the rest of us, you lying crooks and bandits!

WT Economist in reply to Il Maestro

You know that you can borrow from your 401K, right?

Well Generation Greed workers did put lots of extra money into the Social Security trust fund. They promptly borrowed that money and spend it (in cuts in the progressive income tax and more health spending on seniors), leaving behind IOUs.

Now to pay benefits someone else will have to pay that money a second time.

They want to means test younger generations. What about means testing older generations who wanted the income tax cuts, and used the Social Security money to offset it?

Do you actually understand how Social Security works, Il Maestro? You consistently call Republicans "Repukes", and yet many people that vote Republican seem to understand the program much better than you do. Have you done any research before going off half-cocked and spewing insults?

Truly Yours

The "congressional cliff" is a ruthless governance gambit manifesting as self-destructiveness, fiscal irresponsibility, and treasonous mendacity. The GOP Neo-Cons, led by Fuhrer Gingrich and Ayatollah Norquist, are rightly blamed by the American public, which has withdrawn power from this radical party of "no."

The implosion of the GOP may be a harbinger of a new political party that can rescue America and the world from these apologists for the oligarchy.

ZA Observor

Ironic that while there is widespread agreement on what needs to be done to meet the challenges of changing demography in the USA, that politics demands brinkmanship to polarise and confound policy with redundant ideology.

Loopholes need to be closed, the rich need to pay more, the middle class need tax breaks, while Government spending has to be reigned in. Deficit aside, Social Security programs are not sustainable in the changing demographics of the nation unless scaled according to the means of beneficiaries - compromise on the age of normal retirement age eligibility (eg 65) is needed to recognize the reality that many beneficiaries will live and consume social benefits for another 30 years after retirement in the form of a debt burden over the lifetime income of generations to come.

A compromise deal is inevitable - the danger is that it could just be another "muddling along" stop gap that defers rather than addresses any of these issues. Unless there is genuine vision and agreement between the 2 political rivals to create a platform across the next (probably Republican) term, it may instead be far better to go over the cliff now and confront reality head on.


I don't quite understand why The Economist chooses to repeat misinformation, such as the notion that Social Security is in any way related to the deficit. Social Security is an independent program. Perhaps, in twenty to thirty years, its actuarial assumptions may prove to be wrong. But that is easily fixed by changing the contribution parameters. In the mean time, dragging it into the deficit discussion is a red herring.

Likewise, the notion that raising the Medicare eligibility age is a "good thing" is also bogus. The Kaiser Family Foundation has shown (http://www.kff.org/medicare/8169.cfm) that the relatively small reduction in government costs would be more than offset by increased costs in other areas of society, thereby increasing overall medical expenses.

Addressing the deficit is a noble goal, but we should all make sure that the "facts" that we bring to bear on the issue are actually valid.

VeritasVosLiberates in reply to saklein


Social security takes in contributions and pays them back out when people retire. Unfortunately, politicians have been spending all the money taken in by Social Security on other things - pensions, roads, god knows what else. The only "pot" that exists now is a bunch of IOUs from other branches of the government. If that is your idea of independence, I've got some oceanfront property in Kansas to sell you.

For the past two years Social Security has paid out more than it has taken in, and it is projected to do so for the next 40 years. Where do you think that money comes from? More IOUs. What backs the IOUs? The government's power to levy taxes, or more realistically, print money.

My Wag in reply to VeritasVosLiberates

...."IOU's from another branch of govt"
Are you saying that we/US Govt, won't pay our debts?
Our govt doesn't print money. It issues bonds...or debt.
Also from the same site:
We need MMT. Enough with Banksters and financial manipulators


Do you really think Mr. Boehner is of such a stature that he cares to leave a legacy. I am not so sure at all. What kind of a legacy do you assume he is shooting for? A balanced budget? A smaller, leaner gov't? Sorry, I don't see any indication that he tried to rein in the spending spree that took place under the last Pres. or that he was even concerned.

Wasn't it Cheney who said deficits don't matter. I don't remember Boehner speaking up at that time. The deficit that matters is the credibility deficit. Boehner wants to protect infeasible tax reductions for high income individuals while swathes of the US are going unlit and large districts are going bankrupt and stripping out services.

He is shallow and has no credibility. He should surely be held responsible if the US goes into recession.


The republicans should just give Obama all the revenue he's asking for, but condition it on real entitlement reform.

Personally, I'm quite comfortable with going over the fiscal cliff. The tax increases and spending cuts are more honest, simple and gimmick-free than anything the administration and congress are likely to work out.


Actually, it is not really our government that is heading toward a fiscal cliff - it is us!

If our leaders cannot come up with a solution to the budget crisis, the Alternative Minimum Tax will take effect for just about the entire middle class. Under the AMT, many of the usual deductions and exemptions suddenly evaporate.

Even though some deductions will still stand under the AMT, including those for mortgage-interest and charitable donations, some hefty breaks are denied under the AMT, including state and local income taxes and property taxes, child-tax credits, and home-equity loan interest.

Forget about a refund - we will be forced to dig deep into our pockets for money that may not be there. That means interest and penalties if the money is not paid to the IRS on time. Not only will this fiasco cost the average taxpayer about $3,700, it will have devastating effects that will ripple through our already sputtering economy. And once implemented, the AMT is not reversible. It just goes down as a big “whoops”.

When House and Senate representatives arrive home for Christmas without a solution in hand, ask them why they are here instead of doing their job in Washington. Get in their face about it... We pay them an exorbitant salary, provide them with a gold-plated retirement plan, and grant them the most envied healthcare package on earth. For all this, we have a right to expect something other than catastrophic failure.

Freddy Hutter, TrendLines Research

This week's discussions in DC appear to be merging around $3 trillion in cuts over the next ten years. But the leftist media does not explain to folks the cuts are not cuts, but merely a slowing of the spending increases. My Debt Wall model calculates the federal debt will rise (on its present course) another $13.8 trillion over the next ten years.

Today's $16.4 trillion debt becomes $30.2 trillion in 2022. Six more trillion dollar Deficits are planned and assure there will be no Recession. The US federal gov't is bankrupt ... a dead man walking.

Debt Wall chart: http://trendlines.ca/free/economics/DebtWallUSA/DebtWallUSA.htm


There is too much fear mongering over debt & deficits.

Although for most it may seem absurd, in macroeconomic terms, there is little difference between tax & spend and deficit spend.

Deficit spending is a form of tax & spend - the 'tax' comes as a tax to anyone and everyone who has U.S. dollars (via depreciation in the value of the dollar).

In a sense, deficit spending is less burdensome on US taxpayers, as the hit goes to everyone with dollars - inclusive of foreigners & foreign governments (who collectively hold quite a few dollars).

Those foreigners & foreign governments otherwise pay no tax to the U.S. - so deficit spending spreads the burden of US spending onto foreigners - something Conservative & Liberal Americans alike should embrace.

Puntmeister in reply to Puntmeister

That said - I do not mean to imply that it is unimportant how much a government tax & spends or deficit spends. It just isn't so important whether there are deficits or not.

The real fundamental issue is productivity. The question is, is the government spending dollars (generated from taxation or printed out of thin air) effectively. ie - is the hit (hit of taxation and/or dollar depreciation) worth it.

In this, I must admit, the Rebuplicans have a point, as they tend to focus more on the SPEND part. Too much spending on inefficient, unproductive programs damages the economy, whether there are big deficits, small deficits, or surpluses alike.

Jean Michel in reply to Puntmeister

You must add to the inefficient, unproductive spending the hundreds of millions of dollars spent every year to support international groups whether or not they are right to fight their governments. Usually, they are wrong though they pretend they are right because some pressure groups in the US push forward (for their own pecuniary interests, of course) their cases. Among these are the Tibetans, led by the Dalai Lama, the International Uyghur group led by Ms Khebir, and other so called activities in various other countries.

outsidethebox in reply to Puntmeister

Your point is well taken. The only problem is that it all works based on one fact - that the US currency is the world's reserve currency. Looking at the respective growth rates of China for example and the US it appears within three years China will have the bigger economy. In twenty or maybe fewer years, perhaps one twice the size. Do you think the dollar will still be the world's reserve currency? I tend to doubt it. And then suddenly the pressure to balance the budget is going to cause a real serious problem. Somewhat similar to the situation in Greece. Greece merely stole from its creditors and the EU. The US has been stealing from the entire world with these unpaid for deficits.


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