A stock market downturn later this year might provide the kind of pressure both political parties need to avoid a so-called “fiscal cliff,” which includes $500 billion in cuts to planned Pentagon spending, says a key U.S. lawmaker.
As the calendar moves closer to the end of the year, “it’s possible markets will start to react” to continuing congressional inaction on a number of unresolved issues that economists from all political camps predict would combine to deliver a haymaker punch to the still-sluggish American economy.
A market downturn would create among U.S. House and Senate members a “realization [of] the damage it could do to America’s economy,” Senate Armed Services Committee Chairman John McCain, R-Ariz., said during a Sept. 24 forum at the University of Southern California.
The “fiscal cliff” is a term used to describe the perceived effect of a number of budgetary and fiscal laws that are slated to expire on Dec. 31: George W. Bush-era tax cuts, temporary payroll tax cuts and tax reductions for business. That also is when the health care law President Barack Obama pushed through Congress kicks in.
Additionally, twin $500 billion, decade-long cuts to planned federal defense and domestic spending will take effect unless Washington produces a $1.2 trillion deficit-reduction plan.
While members of both parties decry a failure to act, lawmakers have done little besides trade partisan barbs for much of the year. And both chambers have been gaveled out of session until after Election Day on Nov. 6.
That will leave a small window for Congress to act on all those issues during what is expected to be a busy and volatile November-December lame duck session.
Due in part to his belief financial markets will soon begin to show signs of nervousness about the possibility of a fall from the fiscal cliff, McCain — whom some expect will be a big player in avoiding the defense cuts — told the USC forum he “still believe[s] there is going to be a strong motivation to try to resolve this issue.”