By now, you've probably heard enough about the "fiscal cliff" to know all about the steep, automatic tax hikes and spending cuts that U.S. lawmakers are now scrambling to prevent from taking effect. Even if financial catastrophe is averted, however, the term itself is likely to stick around; it has already become shorthand for the increasingly dramatic measures U.S. leaders have taken to force parties with increasingly divergent visions of the size and scope of government to resolve a steady drumbeat of high-wire budget crises. Think of the cliff as Washington's version of the poison pill: making it more painful for politicians to do nothing than to work together to reduce America's debilitating debt and deficits. And that kind of budget brinkmanship isn't going away anytime soon. If anything, the phrase may now be going global, a sort of unwelcome U.S. export to the rest of the democratic world.
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1975
New York City nearly defaults on its debt,
with last-minute federal loans and a teachers' union investment in municipal
bonds pulling the city back from the brink of bankruptcy. (President Gerald
Ford initially withholds federal aid, inspiring the famous tabloid headline "FORD TO CITY: DROP DEAD.") Newsweek describes the debacle as "New
York's fiscal cliff-hanger."
1985
The
Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act demands
that automatic, across-the-board spending cuts take effect if the federal
government misses budget targets, in the first congressional effort to build a
fiscal time bomb that will compel both political parties to get serious about
balancing the budget. "It's a kind of mutual-assured-destruction theory of
fiscal policy," a House Budget Committee staffer explains of the radical new
process, known as "sequestration." "What they're doing is they're creating a
kind of artificial crisis."
1991
Rep. Henry Waxman (D-Calif.), who at the
time heads a congressional subcommittee overseeing Medicaid, becomes the first
major politician to use the precise phrase: Oregon, he warns, is "about to fall
off the fiscal cliff" because of a decision to limit property taxes, which
could reduce state revenues to the point where local leaders are forced to cut
medical services to the poor under a Medicaid reform plan.
1995
Shortly after House
Republican leader Newt Gingrich rides his "Contract with America" to victory in
the 1994 midterm elections and a presidential commission releases a report on
entitlement and tax reform, the media starts applying the term "fiscal cliff"
to the U.S. federal budget. In an article on the enormous pressure entitlement
programs will come under as nearly 80 million baby boomers retire, the San
Francisco Chronicle reports that the country will plunge "off a
fiscal cliff around 2010" even if a Republican plan to balance the budget by
2002 succeeds. "The pain required to keep the deficit at zero is much, much
bigger than anybody is talking about publicly," economist Laurence
Kotlikoff tells the paper.
1998-1999
During a period
of dizzying economic growth, President Bill Clinton and the
Republican-controlled Congress balance the federal budget for the first time
since 1969. Clinton vows to parlay the country's budget surpluses into
reforming Social Security and Medicare. But the administration's costly
proposals, including an ultimately unsuccessful prescription-drug benefit,
anger deficit hawks. "Only in America could one define reform as increasing
spending on a program known to be heading over the fiscal cliff," the Cato
Institute's Doug Bandow laments.
2002
Rep. Charles Rangel (D-N.Y.) balks at
President George W. Bush's proposal in his State of the Union address to make
permanent a $1.3 trillion tax-cut package enacted in 2001, especially given the
administration's free-spending ways. If the cuts are extended beyond their 2010
expiration date, he warns, their cost "will be far greater" than those of
Social Security. When that happens, he adds, "we fall off a fiscal cliff."
2003
The Bush administration forecasts a record
$455 billion budget deficit after initially predicting a $334 billion surplus
for the year, angering deficit hawks like Sen. Kent Conrad (D-N.D.), who warns
that Bush's tax cuts will "explode" at the very moment when the baby-boom
generation is retiring. "This president is running us right over the fiscal
cliff," Conrad complains. "The president says he wants to go to Mars. He's
taken the deficit to the moon." That same year, the White House launches a
second round of tax cuts and the budget-crushing war in Iraq.
2008
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.
The
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.
November 2010
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."
December 2010
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.
November 2011
The
supercommittee fails to reach a deficit-reduction agreement, triggering the Jan. 1, 2013, deadline -- and a flurry of
finger-pointing.
February 2012
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.'"
May 2012
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.
November 2012
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.
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