Obama, Congress Face 'Fiscal Cliff'

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As it stands, $600 billion in spending cuts for key defense⁴ and domestic programs are set to take effect January 1, and tax cuts affecting all American workers would expire, with the government then taking more money out of their paychecks.

The country's presidential and congressional elections were held this week. Now Obama, the incumbent⁵ who won a new four-year term, and his Democratic allies in the Senate are set to negotiate with the Republican-controlled House of Representatives to see if they can reach a pact⁶ to avoid cascading⁷ over what Washington is calling a "fiscal cliff."

The independent Congressional Budget Office on Thursday laid out the importance of reaching a deal.

It said that failure to reach an agreement would be dire⁸ for the fragile U.S. economy, the world's largest. The financial analysts⁹ said that if no deal is reached by year's end, the country's already-sluggish economy would contract by five-tenths of a percent in 2013, and that the jobless rate would jump from 7.9 percent last month to 9.1 percent by the end of next year.

But reaching a deal will not be easy, with Obama calling for the end to tax cuts for households earning more than $250,000 a year and Republicans adamantly¹⁰ against raising tax rates.  The Republican House leader, John Boehner, says that Republicans would be open to some form of increasing government revenues, possibly through elimination¹¹ of various tax deductions¹², as long as Democrats¹³ agree to reform spending for government pension and health care programs for the elderly.

President Obama and Boehner came close to reaching a long-term deal debt and spending deal in 2011, but it fell apart, leading to the pact calling for the mandated¹⁴ spending cuts and the tax changes that would take effect in January.

Neither the president nor his political opponents want the mandates¹⁵ to take effect, but put the possibility of them in place as a way to force an agreement by a certain deadline.

As the cumulative¹⁶ U.S. government debt total continues to mount, Obama and the lawmakers will also face a decision early in 2013 on whether to increase the amount the country can borrow beyond the current $16 trillion level.  Obama has pledged to work for a plan that would reduce the debt level over a period of years, but also has been unable to reach an agreement on that issue with his Republican opponents.

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