Just weeks after the presidential election -- and only months after the collapse of Lehman Brothers sparks a global financial panic and plunges the United States into its worst economic crisis since the Great Depression -- the term's use as a rhetorical cudgel shifts parties as Sen. Jim DeMint (R-S.C.) attacks President-elect Barack Obama and his economic stimulus plan for the first time. "We are trillions of dollars in debt and Obama's massive new spending program threatens to send our nation over a fiscal cliff, leading to higher taxes and fewer jobs," DeMint argues.
spirit and language of the "fiscal cliff" have spread around the world as the
global economy sputters. Here are some ways the concept cropped up in 2012:
Japan: When Japan's opposition parties block a bill allowing the government to sell bonds and finance 40 percent of its budget, journalists, financial analysts, and Japanese leaders see echoes of America's alarming budget theatrics. "The situation could turn into a Japanese fiscal cliff," warns Tsutomu Okubo, Japan's senior vice finance minister. Instead, lawmakers approve the legislation and the prime minister calls elections.
Canada: Canadian columnist Andrew Coyne writes that the deficit-happy Canadian government could use its own fiscal cliff. "[I]f we cannot have a crisis imposed upon us, we need something self-imposed," he writes, "some legislated curb on our tendency to spend now and pay later, some rule, some deadline, some fiscal cliff."
Greece: In an effort to secure more international bailout money, the Greek government issues a decree to curb public spending that looks a lot like the fiscal cliff, imposing automatic spending cuts or tax hikes if the country misses budget targets.
An ascendant Tea Party movement -- led by DeMint, among others -- helps the Republicans retake the House in the midterm elections. "We are headed toward a fiscal cliff," Rep. Jeff Flake (R-Ariz.) says a month later, when a bipartisan presidential deficit commission collapses. "I think Congress seems to have the political courage [to address the deficit] only when we are right at that cliff. The difficulty is we don't know where that cliff really is."
Obama strikes a deal with Republican lawmakers to extend all the Bush tax cuts until Dec. 31, 2012, even though congressional Democrats want to limit the tax cuts to just the middle class. "I've said before that I felt that the middle-class tax cuts were being held hostage to the high-end tax cuts," Obama says. "In this case, the hostage was the American people, and I was not willing to see them get harmed."
July 31, 2011
After a bitter standoff, Democrats and Republicans avert a sovereign default by reaching an eleventh-hour agreement to raise the country's debt ceiling. Drawing on the decades-old "sequestration" procedure, Vice President Joe Biden and Senate Minority Leader Mitch McConnell agree that if a special bipartisan "supercommittee" can't get a deal by November that trims the budget by more than $1 trillion over 10 years, then steep, automatic spending cuts -- split evenly between defense and domestic spending, with exceptions for some major federal programs like Social Security -- will take effect on Jan. 2, 2013, just after the Bush tax cuts expire.
Aug. 5, 2011
Days after the debt-ceiling deal is reached, Standard & Poor's downgrades the U.S. credit rating for the first time in history. "[T]he effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges," S&P explains.
The supercommittee fails to reach a deficit-reduction agreement, triggering the Jan. 1, 2013, deadline -- and a flurry of finger-pointing.
In a congressional hearing, Federal Reserve Chairman Ben Bernanke helps popularize "fiscal cliff" as a catchall term for the deficit-reduction showdown that U.S. leaders have set in motion. "Under current law, on Jan. 1, 2013, there's going to be a massive fiscal cliff of large spending cuts and tax increases," he observes. "I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date." By March, Bernanke will embrace the phrase as his own, referring to "what I've termed a 'fiscal cliff.'"
The Congressional Budget Office reports that though the fiscal cliff would reduce the federal budget deficit by $607 billion, it would also heighten the risk of another recession by causing the U.S. economy to contract at an estimated annual rate of 1.3 percent in the first half of 2013.
The day after the U.S. presidential election, traders concerned about the fiscal cliff deal the Dow Jones industrial average its biggest decline of the year. As financial-news network CNBC adopts a new slogan -- "Rise Above" -- in support of a bipartisan deal on the fiscal cliff, liberals back away from the term "fiscal cliff," arguing that the loaded phrase is overly alarmist. The Economic Policy Institute suggests "fiscal obstacle course"; MSNBC anchor Steve Kornacki proposes "gradual fiscal slope"; and the Washington Post's Ezra Klein endorses "austerity crisis." Whatever you call it, the budget standoff has proved to be a pivotal test of America's paralyzed political system.