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With the Fiscal Cliff Looming, President Obama and The Republican Party Will Have to Compromise

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With President Obama's victory over Mitt Romney in the 2012 election on Tuesday, he now has a chance to finish the job he started. He promises to not raise taxes on the middle class, while reducing the budget deficit, and plans on creating 1.1 million new jobs in 2013 alone. 

Millions of Americans remain divided and some would argue Tuesday's victory has furthered that divide.

Regardless of what candidate you voted for, the President will have to make both parties work together - in this case so the fiscal cliff can be avoided.

The fiscal cliff is set to kick in at midnight on January 1, 2013 and this is something that even Mitt Romney would have to deal with. If you are unfamiliar with what the fiscal cliff is, then I will break it down for you.

The fiscal cliff refers to the effect of a series of legislation which will automatically go into effect should nothing be done by year's end.

This includes the expiration of the Bush-era tax cuts, the end of last year's temporary tax cuts (2%), and massive cuts to Federal spending resulted in massive layoffs.

Over 1,000 federal programs including defense spending and Medicare would be in line for deep spending cuts. This would certainly result in massive layoffs.

The one upside is that the deficit as a percentage of GDP would be cut in half. The downside is that taxes would go up and there would be many, many layoffs. Most experts predict that this would certainly put the country into another recession.

Now that the election is over with, lawmakers and the President have 54 days until now and the end of the year to ensure that these triggers don't go into effect.

There are basically three scenarios.

Scenario A: The government can do nothing and (most likely) allow our country to go into recession, while cutting into the deficit.

Scenario B: The government can cancel some or all of the scheduled tax increases, which would add to the deficit and put us on the path to Greece and other nations in Europe which are undergoing serious issues.

Scenario C: Both sides can reach a compromise and ensure that the middle class tax cuts don't go into effect. Added to that, they can meet in the middle as to what programs will be cut. This way the budget issues are addressed, not as many people are impacted by tax increases and layoffs due to spending cuts. Richard Krogan at the Center for Budget and Policy Priorities argues that stabilizing the debt even at it's current levels should be a top priority for both sides.

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The non-partisan Congressional Budget Office warns that our nation will go through another recession should nothing be done. The unemployment rate at the very least will go above 9% once again.

There is much speculation as to who is responsible for the fiscal cliff. Conservatives blame President Obama and his failed leadership for "kicking the can down the road" and putting us in this situation.

The bottom line is that the President and Congress should share equal blame for the looming fiscal cliff. Obama and House Speaker John Boehner were unable to reach an agreement on many measures - including tax cuts for the middle class and tax increases on the top 1%. Thus, it was agreed upon that these triggers would go be put into place at year's end.

This is a problem that both Republicans and Democrats will need to work out extremely fast. Should they wait until the eleventh hour to work things out, you can expect a massive selloff on Wall Street, which in the short-term would impact 401k plans of millions of working people.

House Speaker John Boehner is putting the ball in President Obama's court and calling upon him to lead so the fiscal cliff can be averted.

Photo of President and Obama from Saul Loeb / Getty Images

Contact Dennis Bakay at dbakay@philly2philly.com

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