“As we check our political calendars, many look to November 6 as the crucial date that will determine the future direction for US politics and the nation’s ailing economy.

Without serious, structural fiscal reforms — which require bipartisanship and compromise — the US economy could go into free fall. Bungee jump image from http://www.shutterstock.com

“But in policy terms, it is January 2nd, 2013 that arguably matters more. That is the day of reckoning for federal government spending in the United States. During last year’s dramatic Congressional showdown over raising America’s debt ceiling (to honour payments to foreign creditors), it was agreed by a petulant congress that automatic cuts would occur on January 2, 2013. This is also when the so-called Bush tax cuts of 2001 will expire.

“This date is dubbed the ‘fiscal cliff’ because of the dramatic changes to the government’s revenue and expenditure that will be brought about by the automatic changes set to take place that day: over $400 billion worth of tax cuts will expire at the same time as about $100 billion of spending decreases are implemented. Many predict that this will likely send the economy into a double-dip recession.

“The Congressional Budget Office estimates a drop in the deficit by about $560 billion between the 2012 and 2013 fiscal years, but the short-term effect is a dampening of economic growth and increased unemployment in an already sputtering economy.

“Most analysts and elected officials agree that something must be done by Congress to avoid the automatic changes it set in motion last year as a political dare to inaction. The opening positions are that the Republicans want all the Bush-era tax cuts to be extended, while Democrats argue that long-term spending cuts should also be offset by tax increases for those earning over $250,000 a year.

“The problem is that the system requires bipartisanship and compromise. However, because power is currently shared by a … ” Tp continue reading this article from The Conversation, click here.