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The 2013 Fiscal Cliff Explained in Gifs

Editor's Note: This is a partner article to Mark's in-depth primer on the fiscal cliff. Be sure to check out for more details and context about the upcoming debate. And have fun with this.

Last Tuesday, Obama and the Democrats had big wins on election night, re-electing President Obama, retaining the Senate, and making gains in the House.

Now, the 112th Congress must leave their vacation homes and election HQs to come back to Washington and address the next big economic crisis, popularly called the "fiscal cliff."

 

So what the heck is the “fiscal cliff” and why does it matter?

The “fiscal cliff” describes a series of laws expected to expire or take effect at the end of 2012 that will have a substantial impact on our financial situation. 

Don't lose focus — this stuff is important. The biggest pieces of the "fiscal cliff" are expiring payroll taxcuts, the expiration of all Bush tax cuts, and mandatory automatic budget cuts that go into effect January 1.

If nothing is done and the laws expire/become enacted as scheduled, tax rates will increase significantly for all income-levels and the government will be forced to implement $1.5 trillion in cuts over the next 10 years.

"You mean my taxes might go up?" I hear you asking. Let me be clear — if nothing is done, your taxes will absolutely go up, potentially by a significant amount. 

On top of that, slashing government spending in the middle of a weak economic recovery could eliminate up to 6 million jobs and plunge us back into recession.

Right. Now that you've got why the "fiscal cliff" crisis is important, let's talk about what might be done about it.

How did we get into this situation?

You know how pundits always accuse Congress of “kicking the can down the road” instead of coming to some form of agreement? Well, we’ve reached the place where several of the biggest cans have landed.

"Wow" is right. Due to the partisan bickering and non-stop obstrucionism from Republican Senators, little has gotten done under President Obama. The result has been a Congress completely unable to address important issues, on track to be one of the least productive in history. In other words, most of our elected officials have been doing some version of this for the past four years:

To make matters worse, the Super Committee that was formed last year to address these exact issues was unable to come to any agreement. The result? A mandatory $1.5 TRILLION in cuts to government spending kicking in January 1st.

It's not all bad news. By bringing a variety of issues concerning the country’s fiscal future into the conversation simultaneously, the odds of a “grand bargain” rise dramatically. Think of it as being able to take out five really big birds (no pun intended, Mr. Romney) with one stone.

So how likely is Congress to reach a compromise?

Despite their recent history of incompetance, it's unlikely that Congress will sit on their hands this time around. The economic risk and massive impact of doing nothing is all but guarunteed to force some form of action, even if we don't like it.

The most likely outcome is some small, targeted tax reforms, somewhat reduced spending cuts, and a mandatory follow-up session scheduled for the next Congress. This would avert an immediate calamity while giving the next Congress the opportunity to make further adjustments as needed. 

While temporary in nature, it would be easiest to agree to in order to avert another financial crisis. We can only expect so much from this Congress, considering their track record.

Of course, Congress could also “undo” all of these pressure points – extending the Bush and payroll tax cuts and repealing the sequester. This would leave the status quo pretty much as is. Because this option does little to change the fiscally unsustainable path we're on, the reaction and vote from fiscally conservative members of Congress will probably look something like this:

So far, the movers and shakers have been feeling one another out as they position themselves in advance of the coming congressional fight. 

To most of us, the press conferences and extremely vague jargon looks and sounds something like this:

And we want to just scream:

However, it's actually being done so that the public is kept in the loop and nobody ends up looking like this when everyone sites down at the negotiation table:

Obama spoke publically immediately after the election, arguing that the election results gave him a mandate to raise taxes on high income earners while cutting spending.

Speaker Boehner (R-Ohio) has been doing his best to appear flexible without suggesting that he'll cooperate with Obama too much. Expect his tone to be very measured in public since he still needs to keep the Tea Party in check and look like the guy holding the gavel.

The Senate is the only wild card in the discussion due to procedural hurdles like the filibuster allowing any senator to slam the breaks on legislation. Whether the two sides will be able to come together and agree on something is still very much up in the air and will be the deciding factor in determining what makes it out of Congress. 

Put nicely, the Senate has looked like this for the past four years:

While we have been left looking like this:

What to watch for in the coming months

The Republican strategy of stubborn opposition failed to make Obama a one-term President.

Whether the GOP learns from their mistakes and seeks some middle ground will be a good indication at the chances of compromise making its way through Congress. Any potential solution will have to win bi-partisan support to reach the president’s pen.

The question now is whether Democrats and Republicans can come together to address America’s own austerity crisis and determine whether they will help or hinder our economic recovery heading in to the new year. Whatever the outcome, the politicians know that the American people are watching.

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