Fiscal Cliff Averted: And Here Are the Next 6 Crises to Worry About
Here's the bright side: After over a year of fretting, the fiscal cliff has finally been averted -- at least for the time being. In a thirteenth-hour agreement, Congress and President Obama decided to raise taxes a little bit, delay the scheduled budget cuts that promised to tank the economy, and craft a plan that will delay a total economic meltdown.
While we've managed to escape a devastating, intentionally-created budget crisis, the war isn't over. Over the next several months, Congress and the president will need to navigate several potential fiscal disasters that, if neglected, could be utterly horrifying. If you still have the stomach to look closely into the ragged visage of utter political incompetence, consider this list of six ways Washington could mess things up for millions of us all over again.
1. Sequestration, the Sequel
Remember sequestration, the stunningly stupid $1 trillion in cuts that Congress imposed on themselves (and us)? Remember when they realized that they couldn't reach an agreement on what actually needed to be cut? Well, they still haven't reached an agreement, and they still haven't taken the sequester off the table. If they can't come to a conclusion within two months, the sequester will kick in, slashing funding to pretty much every federal program and sending the economy in a screaming nose dive.
Happy New Year.
2. The Debt Ceiling
In theory, setting a debt ceiling for the nation was a good idea: Rather than wasting time arguing over every silly little federal expense, the debt ceiling -- introduced during World War I -- enabled Congress to simply set a limit on the amount of money that the government could spend. Since then, the debt ceiling has been raised dozens of times, generally without much trouble or fuss. In 2011, however, Republicans in Congress battled with the president over the debt limit in an attempt to force the government to cut spending. In the process, they provoked a credit rating downgrade for the U.S., threatened to tank our economy, and set the stage for the fiscal cliff.
In a couple of months, we're set to go through the same mess all over again.
3. Austerity Is on Its Way
It's easy to view the federal budget as a sort of household purse writ large. Based on that philosophy, when money gets tight, the government should do what families do -- tighten the purse strings, cut the fat, and generally pull back on expenses. And, now that Obama has locked in many of the Bush tax cuts, things are going to get VERY tight.
The trouble is, while it's easy to deploy cliches, real-life government budget cuts are a bit more complicated. The biggest targets -- defense, Social Security and Medicare -- have rabid defenders, while cutting from easier targets -- like education, Medicaid, and other programs that help the poor and middle class -- tends to compound a nation's economic problems rather than improving them, due to their beneficiaries suddenly having so much less discretionary money to spend.
In other words, austerity is the definition of a rock and a hard place, and we're going there in late February.
4. The (Temporary) Rise and (Inevitable) Fall of the American Paycheck
Everybody knew the payroll tax holiday wasn't going to last forever. While it's fine to cut the cash flow to Social Security for a little while, any long-term cuts to its income will have bigger repercussions -- like the ultimate dissolution of the program.
Sponsored LinksEven so, the holiday was a nicely-designed bit of stimulus. By giving a 2 percentage point break on payroll tax withholding, the government poured money directly into the pockets of every American worker. Now that it's gone, the median American family will now have $1,000 less to spend in 2013 than they would have had, and the economy will lose hundreds of millions of dollars in discretionary income that was helping to fuel the economic recovery.
5. The Ongoing Battle With Unemployment
While the unemployment rate has dropped from its Great Recession peak, it remains high -- and even those who have managed to find a job often find themselves settling for low-paying, low-benefit part-time work that isn't sufficient to keep a middle class family afloat.
Part of the problem is that companies are (allegedly) worried about making long-term plans while an economic disaster looms on the horizon. While the fiscal cliff deal has kept the economy from flying off a cliff, it doesn't resolve the fundamental problems in the economy. And, with austerity measures threatening a deep cut to the economy and a debt ceiling debate threatening America's solvency, it still doesn't look like a great time to hire new workers.
6. There's Still No Deal on Superstorm Sandy Relief
On one level, the incredible devastation of Hurricane Sandy is an isolated problem -- its effect, after all, was largely limited specific parts of the East Coast. Then again, the mid-Atlantic and Northeast are among the country's most densely populated areas, and the continued delay in federal funding to begin rebuilding the area is affecting many millions of citizens. What's more -- as a couple of prominent Republican's, New Jersey Gov. Chris Christie and New York Rep. Peter King, both noted, the Congress has taken longer to respond to this problem than to any comparable disaster in recent memory.
While it's easy to chalk up the Sandy debacle to Congress' current bureaucratic gridlock, it's also worth noting that the Republican party has a long history of blocking disaster relief. Little surprise: To a true budget hawk, disaster relief is yet another overly-generous government program.
But at least the first step of resolving that issue may be taken Friday, assuming the House passes the bill that Speaker John Boehner has scheduled, and approves $9 billion in flood insurance for the victims. Other bills will follow later this month, to send a full package of $60 billion to address the issues created by the hurricane. All $60 billion in aid has already been approved in a package passed by the Senate.
Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at firstname.lastname@example.org, or follow him on Twitter at @bruce1971.