Without congressional action, the fiscal cliff arrives for Americans with the new year.
The potential financial disaster comes as Republicans and Democrats prepare for the lame-duck session of Congress and an attempt to reach a bipartisan agreement that could prevent the country from falling back into a recession, economists have said.
Lawmakers have had three years to address the issue – brought on by a combination of automatic tax increases and spending cuts – but waited until the 11th hour after a presidential election mired in party gridlock.
“The fiscal cliff was never meant to be policy,” said Rep. Peter Roskam, R-Ill. “It was meant to be so erroneous it would promote the [congressional] supercommittee to act. They didn’t, and it’s now upon us.”
After post-census redistricting, Roskam’s 6th Congressional District was redrawn to include Algonquin Township in McHenry County.
House Speaker John Boehner, R-Ohio, has urged President Barack Obama to work for a swift and cooperative resolution.
“He offered an invitation to the president, laying out a pathway that is of common ground to avert this fiscal cliff,” Roskam said. “The people re-elected President Obama, and re-elected a Republican House majority with the expectation we work to find a common ground.”
The issues include reductions in defense and nondefense spending, expiration of the Bush-era tax cuts, the end of a payroll tax holiday and extended unemployment benefits, and a slash in reimbursements for Medicare doctors.
An alternative minimum tax on some 26 million households, which would raise taxes by an average of $3,700 annually, also would be imposed.
The policies would take effect in January and include $7 trillion in additional taxes and spending cuts over the next decade. The debt ceiling – the legal limit on federal borrowing – also could be raised by early next year.
The cliff would cut the deficit by $600 billion through September, but would cause the economy to shrink and cost millions of jobs, according to a recent Congressional Budget Office report.
That could include a drop of 0.5 percent in real gross domestic product, which could increase the unemployment rate to 9.1 percent by the end of 2013.
“I fear a massive tax hike most,” Roskam said. “It would have a tremendous downward effect on job creation. If you are a small business that is organized and taxes go up, you are less likely to invest in your business.”
Another concern is whether the military can absorb the impending cuts, Roskam said.
The study estimates that the GDP would grow by 2.2 percent next year if all Bush-era tax rates were extended, according to the CBO. It could expand by almost 3 percent if the payroll tax cut and current jobless benefits for the long-term unemployed were extended.
Roskam said he favors extending the current tax rate for a year as a bridge to tax reform.
“One [political] party cannot do this alone,” he said. “Republicans are open to more revenues coming in, but we’re concerned how they come in. That will happen in two ways – reform the tax code and grow the economy.”
Congress is expected to convene today to discuss the issue, among other things. U.S. Rep. Randy Hultgren, whose 14th Congressional District was redrawn to include all of McHenry County but Algonquin Township, could not be reached Monday for comment.
• The Associated Press contributed to this report.