What is the fiscal cliff?

8:51 PM, Nov 8, 2012   |    comments
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GRAND RAPIDS (WZZM) -- Congress and President Obama are pledging to prevent impending problems from creating a perfect financial storm that could damage or destroy any economic recovery we've made -- the so-called "fiscal cliff."

According to economist Nicholas Danner from Green Path, the fiscal cliff comes down to three main issues. 

"Income taxes will be going up, along with some other taxes, government spending will be going down, and people could be laid off in the government sector because there will be less money spent by the government," says Danner.

First, tax cuts introduced under President George W. Bush -- and several other tax breaks -- are expiring at the end of 2012.

"There's going to be more money coming out of our paychecks because our tax rate is going back up to levels it was previously," says Danner.

Because of that tax increase Americans will have less disposable income to put into the economy.

The government is also scheduled to cut spending. 

"That's cutting the spending side of government, so both of those things are designed to bring the government deficit down because the government has actually been spending more than it's been taking in," Danner says.

Cutting spending on the government end could lead to job losses.

"There could be spending cuts in government that could directly impact government employees -- government employees could be laid off," Danner says.

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