Changes

The creation of the fiscal cliff was an unintended combination of events.  The "cliff" refers to the large number of policies with economic impacts that are set to expire on December 31, 2012.  Although such policies issues are usually addressed in advance of the expiration date, politicians fear angering taxpayers by voting on these items before the November 2012 general election.  So, any action on the fiscal cliff issues will occur during the [[lame duck]] session between the November 6, 2012 election and the end of the year.  The action may be a permanent set of changes or a short-term extension of the 2012 policies into 2013 to avoid or smooth-out the "cliff."

The creation of the fiscal cliff was an unintended combination of events.  The "cliff" refers to the large number of policies with economic impacts that are set to expire on December 31, 2012.  Although such policies issues are usually addressed in advance of the expiration date, politicians fear angering taxpayers by voting on these items before the November 2012 general election.  So, any action on the fiscal cliff issues will occur during the [[lame duck]] session between the November 6, 2012 election and the end of the year.  The action may be a permanent set of changes or a short-term extension of the 2012 policies into 2013 to avoid or smooth-out the "cliff."

The tax cut legislation enacted in 2002 and 2003 was subject to "pay as you go" Congressional rules that required the cuts to be scored by the Congressional Budget Office over a ten year period.  As a result, the legislation provided for only temporary tax cuts that were scheduled to expire at the end of 2010.  In a budget compromise no permanent solution was found, ans the Republican members of the House of Representatives and President Obama agreed to some temporary spending measures to extend the Bush tax cuts until the end of 2012 and extend unemployment insurance benefits.

The tax cut legislation enacted in 2002 and 2003 was subject to "pay as you go" Congressional rules that required the cuts to be scored by the Congressional Budget Office over a ten year period.  As a result, the legislation provided for only temporary tax cuts that were scheduled to expire at the end of 2010.  In a budget compromise no permanent solution was found, ans the Republican members of the House of Representatives and President Obama agreed to some [[Direct_spending#Temporary_spending|temporary spending]] measures to extend the Bush tax cuts until the end of 2012 and extend unemployment insurance benefits.

During the summer of 2011, House Republicans refused to authorize any new spending allocations without meaningful reform to existing programs and tax reform measures. The president asked for an increase in the [[debt ceiling]] to continue his "[[American Recovery and Reinvestment Act of 2009|emergency stimulus]]" spending levels.<ref>"[http://online.wsj.com/article/SB10001424127887323894704578113033115035920.html the $830 billion stimulus of 2009 has now become part of the federal budget baseline. The "emergency" spending of the stimulus has now become permanent.]" ''The Hard Fiscal Facts, [[Wall Street Journal]], November 11, 2012.</ref> Without a higher ceiling, the U.S. Treasury could not borrow money now to write Social Security checks and keep the government operating.  The United States risked defaulting on its debts and be forced to shut down.  A compromise (called the [[Budget Control Act of 2011]])  was reached that raised the debt ceiling in exchange for the creation of a "Supercommittee" that would find spending cuts to take effect in 2013, with other spending cuts going into effect immediately.  If the Supercommittee could not reach an agreement or if Congress rejected their recommendations, then automatic across-the-board cuts to both national security and entitlement spending would take place.  The law was drafted to make the automatic cuts so undesirable that Congress would be forced to work out a deficit reduction agreement.  However, the Supercommittee failed to agree and both Republicans and Democrats decided in 2011 to leave the spending cut question for additional legislation in 2012.  If a new law were not passed before December 31, 2012, then automatic spending cuts under the existing law would apply to almost all federal programs in 2013. At the last moment, the cuts were "kicked down the road" 60 days to the next Congress, Bush-era tax rates were made permanent, and the top marginal rate returned to the Clinton-era rate.

During the summer of 2011, House Republicans refused to authorize any new spending allocations without meaningful reform to existing programs and tax reform measures. The president asked for an increase in the [[debt ceiling]] to continue his "[[American Recovery and Reinvestment Act of 2009|emergency stimulus]]" spending levels.<ref>"[http://online.wsj.com/article/SB10001424127887323894704578113033115035920.html the $830 billion stimulus of 2009 has now become part of the federal budget baseline. The "emergency" spending of the stimulus has now become permanent.]" ''The Hard Fiscal Facts, [[Wall Street Journal]], November 11, 2012.</ref> Without a higher ceiling, the U.S. Treasury could not borrow money now to write Social Security checks and keep the government operating.  The United States risked defaulting on its debts and be forced to shut down.  A compromise (called the [[Budget Control Act of 2011]])  was reached that raised the debt ceiling in exchange for the creation of a "Supercommittee" that would find spending cuts to take effect in 2013, with other spending cuts going into effect immediately.  If the Supercommittee could not reach an agreement or if Congress rejected their recommendations, then automatic across-the-board cuts to both national security and entitlement spending would take place.  The law was drafted to make the automatic cuts so undesirable that Congress would be forced to work out a deficit reduction agreement.  However, the Supercommittee failed to agree and both Republicans and Democrats decided in 2011 to leave the spending cut question for additional legislation in 2012.  If a new law were not passed before December 31, 2012, then automatic spending cuts under the existing law would apply to almost all federal programs in 2013. At the last moment, the cuts were "kicked down the road" 60 days to the next Congress, Bush-era tax rates were made permanent, and the top marginal rate returned to the Clinton-era rate.