BY NOW, YOU'VE probably heard enough about the "fiscal cliff" to know all about the steep, automatic tax hikes and spending cuts scheduled to greet Americans on New Year's Day in the absence of a deficit-reduction deal. Even if financial catastrophe is averted, however, the term itself is likely to stick around; it has already become shorthand for the increasingly dramatic measures U.S. leaders have taken to force parties with increasingly divergent visions of the size and scope of government to resolve a steady drumbeat of high-wire budget crises. Think of the cliff as Washington's version of the poison pill: making it more painful for politicians to do nothing than to work together to reduce America's debilitating debt and deficits. Deal or no deal, that kind of budget brinkmanship isn't going away anytime soon. If anything, the phrase may now be going global, a sort of unwelcome U.S. export to the rest of the democratic world.
New York City nearly defaults on its debt, with last-minute federal loans and a teachers' union investment in municipal bonds pulling the city back from the brink of bankruptcy. (President Gerald Ford initially withholds federal aid, inspiring the famous tabloid headline "FORD TO CITY: DROP DEAD.") Newsweek describes the debacle as "New York's fiscal cliff-hanger."
The Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act demands that automatic, across-the-board spending cuts take effect if ' the federal government misses budget targets, in the first congressional effort to build a fiscal time bomb that will compel both political parties to get serious about balancing the budget. "It's a kind of mutual-assured-destruction theory of fiscal policy," a House Budget Committee staffer explains of the radical new process, known as "sequestration." "What they're doing is they're creating a kind of artificial crisis."
Rep. Henry Waxman (D-Calif.), who at the time heads a congressional subcommittee overseeing Medicaid, becomes the first major politician to use the precise phrase: Oregon, he warns, is "about to fall off the fiscal cliff" because of a decision to limit property taxes, which could reduce state revenues to the point where local leaders are forced to cut medical services to the poor under a Medicaid reform plan.
Shortly after House Republican leader Newt Gingrich rides his "Contract with America" to victory in the 1994 midterm elections and a presidential commission releases a report on entitlement and tax reform, the media starts applying the term "fiscal cliff" to the U.S. federal budget. In an article on the enormous pressure entitlement programs will come under as nearly 80 million baby boomers retire, the San Francisco Chronicle reports that the country will plunge "off a fiscal cliff around 2010" even if a Republican plan to balance the budget by 2002 succeeds. "The pain required to keep the deficit at zero is much, much bigger than anybody is talking about publicly," economist Laurence Kotlikoff tells the paper.
During a period of dizzying economic growth, President Bill Clinton and the Republican-controlled Congress balance the federal budget for the first time since 1969. Clinton vows to parlay the country's budget surpluses into reforming Social Security and Medicare. But the administration's costly proposals, including an ultimately unsuccessful prescription-drug benefit, anger deficit hawks. "Only in America could one define reform as increasing spending on a program known to be heading over the fiscal cliff," the Cato Institute's Doug Bandow laments.
Rep. Charles Rangel (D-N.Y.) balks at President George W. Bush's proposal in his State of the Union address to make permanent a $1.3 trillion tax-cut package enacted in 2001, especially given the administration's free-spending ways. …