WASHINGTON (CBSMiami) – While candidates from both parties continue to campaign, a looming fiscal cliff is set to possibly cripple the economy starting January 1. The fiscal cliff, along with the paralysis in Congress, has led Moody’s Credit Agency to warn of another downgrade to the U.S. credit rating.
Moody’s said it could drop the U.S.’ credit to Aa1 from Aaa if Congress doesn’t act to stave off much of what is looming at the end of the year.
The fiscal cliff as its being called involves the end of the Bush tax cuts, the sequester agreed to by Congressional Republicans and the president, and other fiscal policy issues.
The blame for the fiscal cliff falls on both sides of the political aisle. Republicans have stonewalled any potential deal that involves revenue increases. However, no economist has said that austerity alone can solve the problems with the budget.
Democrats have been reluctant to allow cuts to social programs such as food stamps during high unemployment and record enrollment in many government safety net programs during the Great Recession and slow recovery.
The sequester would be an across the board cut that would apply to all forms of government, including defense spending. Both parties agreed to the sequester as part of the debt limit negotiations last year. The sequester wasn’t supposed to take effect and was instead supposed to be a threat to increase the likelihood of a deal.
But, Republicans again refused to increase any revenues, specifically by increasing taxes on the wealthiest Americans and Democrats refused to spending cuts without the revenue increases. That led to a failed budget deal by a Congressional committee and the sequester became law.
Republicans now say that the sequester is only the fault of the president and that the defense cuts must not be allowed. Democrats counter that it’s strange that Republicans want spending cuts to everything except defense and that the sequester was agreed to by both parties.
The GOP-led House of Representatives passed a bill to extend the Bush tax cuts for all Americans and a bill to head off the sequestration that would result in other major cuts to social programs. Both bills were dead on arrival in the Democratic-led Senate.
Democrats in the Senate passed a bill that would extend the Bush tax cuts for the middle class but would let the wealthiest one to two percent of Americans tax rates return to those of the Clinton-era.