Between late December 2012 and early January 2013, various media platforms buzzed with one phrase: “fiscal cliff.”

Adding to the sense of foreboding was the fact that it lacked a clear definition for many. Due to the complexity of the concept, many people did not know what it meant, what was being negotiated or and why it was so politically charged.

The fiscal cliff was a collection of automatic spending cuts that were scheduled to take place if Congress failed to cut a deal to reduce the federal deficit by Jan. 1, 2013, said Donald Dutkowsky, professor of economics at Syracuse University.

The automatic cuts would have affected multiple federal programs, he said. Several tax cuts from the Bush and Obama administrations would have expired as well.

Congress brokered a last-minute deal in the early hours of Jan. 1, after a two-month political standoff.

The fiscal cliff stems from the debt ceiling crisis last year, when Congress faced pressure to resolve the multi-trillion dollar federal deficit, Dutkowsky said.

In 2011, legislators foughtabout raising the debt ceiling, which would have increased the legal amount the federal government is allowed to borrow in order to fund its expenses, he said. If the debt ceiling is exceeded, the federal government defaults on its debts. The risk of default made the debate highly contentious, and the uncertainty led to U.S. bonds being downgraded, he said.

Although Congress voted to raise the debt ceiling, a significant deficit remained. Legislators passed an ultimatum in case it failed to decide on a solution by a certain date, said Grant Reeher, a political science professor in the Maxwell School of Citizenship and Public Affairs. This date later became known as the fiscal cliff.

Though major questions concerning spending and revenue were not answered with the fiscal cliff deal, both Dutkowsky and Reeher hesitate to dismiss the January 2013 deal.

“There are other things that say there’s hope for the system,” Reeher said.

The deal came to the floor for voting despite significant Republican opposition, he said. He said he does not believe the deal was “done on an entirely partisan level,” noting that some Democrats also voted against the bill.

The plan changed the tax rate for the high-income bracket while trying to avoid hurting small business and leaving deductions intact.

Congress also agreed to raise social security tax cuts back to previous rates, he said.

Because the fiscal cliff deal did not address the deficit, Congress is dealing with the debt ceiling now, Reeher said. He noted that Secretary of the Treasury Timothy Geithner suggested the decision might come soon.

Dutkowsky said he is optimistic, but remains concerned about the economy.

Said Dutkowsky: “I want something reasonable to be done with the debt ceiling and the fiscal cliff and get the economy back to normal, especially for young people to get jobs and move along with their lives.”

Published on January 16, 2013 at 12:52 am

Contact Natsumi: najisaka@syr.edu