This supposed crisis centered around three things that were scheduled to happen on the new year. First, the Bush tax cuts were going to end, this would raise taxes on all americans and significantly shrink the amount of spending money in the pockets of middle class people. This would have been a bad thing, however what the President wanted to do was to extend the tax cuts for people of all incomes but the top one or two percent. This would keep most people from being affected by the change and would increase revenue for the government. Second, a sequester was planned to take place, this meant that $1.2 trillon would be cut from the federal budget. This was agreed on as a cocession to republicans during the debt ceiling negotiations last year and would have damaged losts of government programs like Medicare and Social Security. Finally, the estate tax was set to expire. This is a tax on large inheritances. There were other things that were also being negotiated such as unemployment benefits and the capital gains tax, but these three were the most important. If left unchecked, it was pretty clear that these deadlines would shrink the economy significantly.
After lots and lots of negotiating, dealing, and backstabbing an agreement was reached, but not till after the new year. This means we did actually go over the fiscal cliff, but nothing really happened. A few days after the new year congress passed a deal agreed upon by Mitch McConnel and Joe Biden. This deal continued the tax cuts for everyone making less than $450,000, continued the estate tax at 40% for inheritances over $5 million, and delayed the sequester for two months. This deal was generally liked by all involved and so there wasn't much trouble putting it through Congress even though Eric Cantor and other conservative republicans threatened to block it. It does, however mean that there will be more negotiations in two months over the sequester, so it's not over yet.
John Boehner
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