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The fiscal cliff: What it means

Published On: Nov 15 2012 09:30:06 PM CST
Updated On: Jan 14 2014 07:44:07 PM CST

ABC-7s Matthew Smith reports

EL PASO, Texas -

When President Barack Obama greets congressional leaders at the White House on Friday, an elaborate set of postelection rituals will be complete. Yet divided government's ability to attack the nation's economic woes is no clearer now than it has been for months.

Eventually, something's got to give in a country where voters are weary of gridlock and wearier still of high unemployment.

Or does it?


"I'm open to compromise and I'm open to new ideas," Obama said at his White House news conference on Wednesday. He stressed the importance of avoiding the "fiscal cliff," a double whammy of tax increases and spending cuts at the turn of the year.

But he made it clear he would be flexible only to a point.

He referred more than once to his defeat of Republican Mitt Romney, saying, "I argued for a balanced, responsible approach, and part of that included making sure that the wealthiest Americans pay a little bit more."

"By the way, more voters agreed with me on this issue than voted for me," he added, a reminder to Republicans that some of their supporters, too, disagree with the party's position.

House Speaker John Boehner, R-Ohio, also regularly stresses a willingness to reach across the aisle, citing the emergence of a "spirit of cooperation" since the election that he says bodes well for an agreement.

Like Obama, he avoids definitive answers to hypothetical questions.

"I don't want to box myself in. I don't want to box anyone else in," he said recently.

What unfolds on Capitol Hill in the coming weeks will likely have a real life effect on people throughout the Borderland.  According to John Sonnen, the president of Lauterbach Financial Advisors, spending on a Federal level will trickle down to El Paso.

If the two sides can't come to terms by Jan. 1, a series of across-the-board spending cuts take effect -- a combination known as the "fiscal cliff" that many economists say could send the economy back into recession.

The fiscal cliff is tied to "sequestration" another term likely to be heard in the coming days.  It means the government would have to stop payment on a multitude of payments.  The laundry list of items would likely include defense cuts, meaning job losses and ultimately a negative effect on the economy.

For the average taxpayer, that means financial planning. 

Younger people have time to build a portfolio, so it likely won't effect them unless a severe crash occurs causing job loss.  Most economists believe the political parties would make an agreement before it gets to that point.  However, older generations who remain on fixed income have to be more concerned about the market uncertainty ahead.  Sonnen said that's why financial plans are needed.  Without one a person can find themselves living from crisis to crisis.

"A proper plan builds in that uncertainty," said Sonnen.  "Those who fail to plan, this always feels like some major event they're unprepared for."

But there is hope this isn't over yet -- that Republicans and Democrats will make a pact before time expires.


Despite the claim of a dual mandate, Boehner has signaled the end of efforts to repeal Obama's health care legislation, a cause that animated the tea party and united Republicans who swept to power in the House two years ago.

Numerous Republicans in Congress and among the nation's governors say the party must appeal more effectively to Hispanic voters, who account for an ever-increasing share of the electorate and gave Obama more than 70 percent of their votes this fall. Already there are the first stirrings of compromise talks on an overhaul of immigration law, to include a pathway to legal status if not citizenship for millions who are in the country illegally.

The "tone and rhetoric" employed by Republicans in recent debates over immigration have "built a wall between the Republican Party and Hispanic community," Sen. Lindsey Graham, R-S.C. conceded a few days after the election.

So much for Romney's statement in last winter's primaries that illegal immigrants can self-deport.

Immigration legislation will wait until 2013 at least.

By then, Obama and Congress will show whether the election produced a government more inclined to compromise, or to more gridlock.

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