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What happens if we drive off the ‘Fiscal Cliff’?

Dr. Jim Denison is a cultural apologist who helps people respond biblically and redemptively to the vital issues of our day. He is also the co-founder and Chief Vision Officer of the Denison Forum, a Dallas-based nonprofit that comments on current issues through a biblical lens.

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This is a CBO diagram showing projected deficits with and without the effects of the fiscal cliff.

The “Fiscal Cliff” is making headlines this morning.  Let’s answer some common questions about this looming crisis, then look to God’s word for encouragement.

What is the “Fiscal Cliff”? Tax increases and spending cuts set to take effect on January 1, 2013.  Who created it?  Government negotiators meeting in August 2011 to forge a deficit reduction plan.  They failed, so they enacted policies so draconian that they would force the government to try again before such policies could be implemented.

What would the “Cliff” do to us? The 2001 and 2003 Bush Tax Cuts would expire; the estate tax would increase; the payroll tax holiday would end; five new taxes would be implemented as a result of the Affordable Care Act (ObamaCare).  In total, tax increases would cost around $514 billion, with spending cuts of $109 billion.

What is Washington likely to do about it?  Some want to do nothing, waiting until the new Congress is seated.  Others want a “Grand Bargain” that will stabilize entitlements and reform the tax code.  Another approach is to preserve some tax cuts while allowing others to expire, or to delay the problem by extending present policies for six months or a year.  Still others want to make small deficit reductions now to buy time for a larger negotiation next year.

What will happen if we drive off the “Cliff”? The Congressional Budget Office warns that a recession next year would be likely, as would a rating downgrade for our nation. Some claim that unemployment would increase beyond 15 percent, state government finances could collapse, many homeowners would default on mortgages, and hundreds of banks could fail.  Those with incomes between $64,000 and $108,000 would see their taxes go up by $3,540; those earning $108,000 and more would pay a tax increase of $14,173.

As I considered such alarming news this morning, I asked the Lord what he wanted to teach me.  The first thought that flashed into my mind was this: financial uncertainty is a wonderful time to discover the source of my security.  Scripture promises that “my God will meet all your needs according to his riches in glory by Christ Jesus” (Philippians 4:19).  By contrast, wealth is unreliable: “Cast but a glance at riches, and they are gone, for they will surely sprout wings and fly off to the sky like an eagle” (Proverbs 23:5).  As Tolstoy warned us, “pleasure in wealth is a fickle joy.”

So what should we do?  Thomas Jefferson observed, “It is neither wealth nor splendor; but tranquility and occupation which give you happiness.”  Solomon agreed: “Whoever trusts in riches will fall, but the righteous will thrive like a green leaf” (Proverbs 11:28).

In whom are you trusting for your financial future?