CCU Economist: going over "fiscal cliff" would really hurt

With the election behind us, President Obama and Congress have to find a way to fix a looming budget crisis called the "fiscal cliff".

A deal came out of Congress last year that calls for a package of tax increases and budget cuts to automatically go into effect, unless Congress can come up with a plan to reduce the deficit.

So far, Congress hasn't come up with a plan and the deadline for the tax increases and cuts to go into effect is December 31.

That's when, if Congress and the president do nothing, income tax rates will go up.

The Bush-era tax cuts of 2001 and 2003 will expire, temporary payroll tax cuts will expire, and more than a thousand government programs will be cut.

Coastal Carolina University economist Rob Salvino says the budget cuts would be a relatively small part of the nation's gross domestic product. He says the bigger problem is the tax increase, which would hit everybody.

"A 20 percent increase in taxes overall, it's hard not to effect everybody, even if you're not directly effected, that's such a dramatic increase in taxes, there will be effects as a result of that," Salvino said.

Cutting the deficit would be a good thing, Salvino says, but a big drop all at once would hurt the economy.

Salvino add that if there is no solution for the fiscal cliff, most economists believe it would cause a recession. He doesn't think that will happen.

Republicans don't like tax increases and Democrats don't like budget cuts. Salvino believes they will come up with a deal, with both sides giving in a little.

"There are going to be higher taxes and there are going to be spending cuts. I just don't think it's what this fiscal cliff is showing; it's more going to be a kind of gradual increase," he said.

How did it get this way? Salvino says both parties are to blame. Or maybe it's all of us.

"It's the American people, it's people in general. We like to have more stuff and not really pay for it upfront."

Salvino says one long term solution for raising revenue would be to close some tax loopholes and broaden the tax base. That would still hurt, but he says something has to be done.

House Speaker John Boehner said Thursday Republicans would consider some form of higher tax revenue, "under the right conditions."