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| Version 2 | Version 3 |
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| Fiscal cliff: Q&A | Fiscal cliff: Q&A |
| (25 days later) | |
| What is the fiscal cliff? | What is the fiscal cliff? |
| A group of spending cuts and tax hikes that will come into effect on 1 January. The deadline stems from negotiations back in 2011 over how much the US can borrow. Every year, US politicians raise the debt ceiling but, in 2011, a group of Tea Party-led Republicans decided America had to cut its debt. They refused to raise the debt ceiling until the government trimmed the budget. The fight got so ugly, and both sides were so opposed, that the US came within hours of being unable to pay its debts. So politicians struck a deal: the debt ceiling would be raised, on condition that Congress would come up with a plan to trim the deficit by 1 January 2013. If it didn't, there would be automatic spending cuts and tax hikes. | A group of spending cuts and tax hikes that will come into effect on 1 January. The deadline stems from negotiations back in 2011 over how much the US can borrow. Every year, US politicians raise the debt ceiling but, in 2011, a group of Tea Party-led Republicans decided America had to cut its debt. They refused to raise the debt ceiling until the government trimmed the budget. The fight got so ugly, and both sides were so opposed, that the US came within hours of being unable to pay its debts. So politicians struck a deal: the debt ceiling would be raised, on condition that Congress would come up with a plan to trim the deficit by 1 January 2013. If it didn't, there would be automatic spending cuts and tax hikes. |
| What happens at midnight? | What happens at midnight? |
| If no deal is done, a $560bn (£345bn) package of tax increases and government spending cuts will come into effect. Bush-era tax cuts and a payroll tax holiday will expire immediately, hitting 90% of Americans. The Tax Policy Centre estimates that the combined effect will raise taxes for the average American by $3,500 a year. | If no deal is done, a $560bn (£345bn) package of tax increases and government spending cuts will come into effect. Bush-era tax cuts and a payroll tax holiday will expire immediately, hitting 90% of Americans. The Tax Policy Centre estimates that the combined effect will raise taxes for the average American by $3,500 a year. |
| Spending will also be cut by $110bn a year for the next 10 years. Half of that would come from the defence budget, with the other half taken from programmes such as Medicare, which guarantees health insurance for elderly and disabled people. The cuts will hit programmes such as farm subsidies, student loan support, national parks and assistance to those living in low-income housing, as well as big agencies including the FBI. Unemployment benefits to 2.1 million Americans who are long-term unemployed would disappear. More Americans will lose their benefits over the course of the next few months. | Spending will also be cut by $110bn a year for the next 10 years. Half of that would come from the defence budget, with the other half taken from programmes such as Medicare, which guarantees health insurance for elderly and disabled people. The cuts will hit programmes such as farm subsidies, student loan support, national parks and assistance to those living in low-income housing, as well as big agencies including the FBI. Unemployment benefits to 2.1 million Americans who are long-term unemployed would disappear. More Americans will lose their benefits over the course of the next few months. |
| What will it mean for the US economy? | What will it mean for the US economy? |
| The government's annual tax take would rise by $500bn, significantly lowering the federal budget deficit, but at a high price. The US economy has recovered since the financial crisis but remains fragile. If the US falls off the fiscal cliff, consumer spending power would be squeezed dramatically and unemployment would rise. Economists say the most likely result would be to push the world's largest economy into recession. | The government's annual tax take would rise by $500bn, significantly lowering the federal budget deficit, but at a high price. The US economy has recovered since the financial crisis but remains fragile. If the US falls off the fiscal cliff, consumer spending power would be squeezed dramatically and unemployment would rise. Economists say the most likely result would be to push the world's largest economy into recession. |
| What are the sticking points? | What are the sticking points? |
| The main sticking point is the threshold for raising income taxes on households earning more than $250,000 a year. Obama wants these households to shoulder a greater burden, but many Republicans have said they would vote against any increase in tax. | The main sticking point is the threshold for raising income taxes on households earning more than $250,000 a year. Obama wants these households to shoulder a greater burden, but many Republicans have said they would vote against any increase in tax. |
| Who is to blame? | Who is to blame? |
| Both sides will inevitably blame each other. Even before the deadline, the politicians were getting in their parting blows. Obama took to the political talkshows to accuse his opponents of having "trouble saying yes" to any proposal put before them, while Republican House Speaker John Boehner said: "We've been reasonable and responsible. The president is the one who has never been able to get to 'yes'." A Reuters/Ipsos poll on 27 December showed that Americans blame Republicans more than Democrats or the president for the impasse. When asked who they believed to be more responsible for the fiscal cliff, 27% blamed Republicans in Congress, 16% blamed Obama and 6% blamed Democrats in Congress. The largest group – 31% of those surveyed – blamed "all of the above". | Both sides will inevitably blame each other. Even before the deadline, the politicians were getting in their parting blows. Obama took to the political talkshows to accuse his opponents of having "trouble saying yes" to any proposal put before them, while Republican House Speaker John Boehner said: "We've been reasonable and responsible. The president is the one who has never been able to get to 'yes'." A Reuters/Ipsos poll on 27 December showed that Americans blame Republicans more than Democrats or the president for the impasse. When asked who they believed to be more responsible for the fiscal cliff, 27% blamed Republicans in Congress, 16% blamed Obama and 6% blamed Democrats in Congress. The largest group – 31% of those surveyed – blamed "all of the above". |
| What next? | What next? |
| No one wants the fiscal cliff, so, while the deadline is seen as a big deal, negotiations will probably continue. President Obama has already said that if the tax increases come into effect, he would return on 4 January with a new bill to cut taxes on middle-class families. | No one wants the fiscal cliff, so, while the deadline is seen as a big deal, negotiations will probably continue. President Obama has already said that if the tax increases come into effect, he would return on 4 January with a new bill to cut taxes on middle-class families. |
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