If you have had your television on lately or picked up a newspaper you have likely seen or heard the phrase "fiscal cliff." As media outlets are reporting coast to coast, our country could soon be facing the fiscal cliff with the automatic budget cuts and tax increases slated to take affect in January.
There are two parts to the fiscal cliff, the first being Sequestration. Sequestration will bring $492 billion in automatic cuts to the federal budget over the next ten years. Those cuts will affect nearly every agency or program in one way or another. Most notably are the over-weighted constraints that will be put on defense spending. Sequestration will reduce funding for the Department of Defense by nearly 20 percent. While in theory, reducing costs are a good approach, cuts of this magnitude would drastically shrink our nation's military and potentially harm national security. Earlier this year, the House passed three pieces of legislation that would replace Sequestration; however our colleagues in the Senate have opted not to act.
The second part of the fiscal cliff is a tax hike on families and small businesses. If action is not taken our country will face a $4 trillion tax hike at the end of the year, due to a number of tax rates rising and many commonly used tax credits expiring. For example, the capital gains rate will jump from 15 to 20 percent, the child tax credit will decrease by $500, the 2 percent payroll tax will expire and the small employer health care credit will expire. We know that raising taxes on families already doing everything they can to pay monthly bills and small businesses struggling to meet payroll is not going to put our country on a more sound footing. It will simply force folks to tighten their belts further, stop hiring new workers and continue to risk our country's economic stability.
Recently, the nonpartisan Congressional Budget Office (CBO) reaffirmed that should our country go over this fiscal cliff, unemployment would likely surge to 9.1 percent and GDP would contract by half of a percent in 2013. Half of a percent might not sound like much, but when you are talking about billions of dollars, that is a pretty significant number.
There is little doubt the fiscal cliff is one of our nation's greatest challenges and to avoid going over the fiscal cliff will require compromise among leaders in Washington. If common ground is going to be achieved however, it is critical that President Obama understand that Members of Congress, regardless of party, cannot abandon the core principles that form the bedrock of their beliefs. For Republicans, that means not playing politics with our nation's security and not raising tax rates on families and small businesses in order to pay for more government spending.
Late last week, the President and Congressional leaders began discussions on a way forward and will continue examining options after Thanksgiving. While there are great challenges in the weeks ahead, I remain hopeful we can come together and ultimately do what's best for our country.