The Fiscal Cliff Is Within Months

Ben Bernanke

Federal Reserve Chairman Ben Bernanke has warned lawmakers about the potential effect of the “fiscal cliff,” adding that “there is absolutely no chance that the Federal Reserve would be able to have the ability whatsoever to offset that effect on the economy.” 

A conservative think tank, American Action Forum, published a report by Holtz-Eakin that claims if we go off the fiscal cliff, we will affect 4% of our GDP and lose 2.8 to 10 million jobs,  driving us into a calamitous recession.

Bernanke has repeatedly and recently warned us that we were headed for the fiscal cliff if Congress does not act.

The Republicans believe that not extending the Bush tax law will drive investors and businessmen underground.

via American Action Forum

…The American Action Forum today released a study examining the economic effects of the fiscal cliff, a $600 billion combination of tax increases and across-the-board spending cuts, scheduled to go into effect on January 1, 2013. The fiscal cliff is twice the size of the growth in U.S. GDP ($300 billion) this year.

Forum President Douglas Holtz-Eakin and Ike Brannon, Director of Economic Policy, found that assuming current policy stays intact and the country goes straight over the fiscal cliff, based off Dr. Christina Romer’s GDP economic multipliers, the U.S. economy could lose from 2.8 million jobs to as much as 10 million jobs.

Additionally, Holtz-Eakin and Brannon found that reaching the fiscal cliff will decrease the likelihood that small businesses will hire by 18 percent, and push the effective marginal tax rate for many workers and small businesses above 50 percent of their income.

Though the policy changes do not take effect until 2013, the impacts are already being felt across the economy as uncertainty increases and confidence and consumer spending decrease…