It is called a fiscal cliff because in addition to the expiration of the Bush tax cuts, the largest contributors to the nation’s deficits over the past 10 years, there are also automatic across-the-board 8.2 percent cuts in federal discretionary spending, including defense, that will go into effect on January 3, 2013.
If congress and the president don’t reach a deal on taxes and spending to reduce the federal debt by $1.2 trillion over the next decade, all these cuts take place automatically. Experts believe that in today’s economy, which is recovering very slowly, “new” taxes coupled with these cuts could bring about another recession.
Federal student loans, most child nutrition programs and the Children’s Health Insurance Program would be exempt from cuts, but there are deep cuts to general educational programs, like $334 million in Department of Education funding for California, plus $75 million less for Head Start and $19 million less in childcare subsidies.
The cuts would not take effect until July 1, 2013, so there is time for congress to work out a solution, even in the event that we “plunge off the fiscal cliff.”