Democrats and Republicans Preparing For "Fiscal Cliff" Battle

Mere moments after Barack Obama officially won a second term on Tuesday evening, talk turned to the upcoming "fiscal cliff".

The "fiscal cliff", which could potentially tip the United States into another recession and/or result in another credit downgrade, involves the simultaneous expiration of various tax provisions and implementation of automatic spending cuts.

In addition, the Republicans and Democrats must agree to a deal that raises the nation's debt ceiling, as the Treasury Department has already warned that the debt ceiling will likely be reached by the end of this year (December 31st, 2012).

With the nation as polarized as ever, the idea of the Republicans and Democrats working together to reach a deal to avoid the "fiscal cliff" seems hard to imagine at this point.

After all, the Republicans have publicly stated that they will vote against any deal that involves implementing tax increases as a way of increasing revenues. The Republicans believe that a combination of spending cuts, a "cleaning up of the tax code" and tax cuts is the way forward.

The Democrats, on the other hand, believe that tax increases are necessary in order to reduce the size of future deficits and mend the nation's poor economic health. The Democrats believe that they have a mandate from the voting public to push through higher taxes on the rich following the re-election of President Obama.

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Earlier today, President Obama threw down the gauntlet, proclaiming that he will veto any bill that extends tax cuts for those people who are making more than $250,000 per year.

Just yesterday, in an interview with ABC News, House Speaker John Boehner said that "raising tax rates is unacceptable" and that any deal that included increased tax rates would not clear the House of Representatives.

Sounds like a stand-off to me..

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Get ready to hear nothing but "fiscal cliff" talk over the next couple of months. There will be plenty of hand-wringing, roiled markets and apocalyptic predictions.

Which side will buckle? Who will "win"? It's going to be interesting to see how this plays out, as there is just so much on the line.

Filed under: General Knowledge