More than 1,700 Central Oregonians could lose their unemployment insurance on Jan. 1.

A Bend family making $64,000 a year could see its income tax rate rise nearly 4 percent, while scores of tax breaks expire.

The state of Oregon could be hit with a 7 percent reduction in federal grants available for education and other social programs, while state programs like food stamp assistance and infant medical care stand to face steep cuts.

All of this is set to happen in the blink of an eye, with a push over the so-called “fiscal cliff.”

Since the November election, the fiscal cliff has dominated political dialogue in Washington, D.C., while casting an economic cloud over average Americans.

Automatic tax increases and spending cuts stand to take effect in the new year, without a last-minute agreement between congressional Democrats and Republicans on a short- or long-term fix. The cliff represents nearly $650 billion in combined tax increases and spending cuts, which many economists fear could derail a fragile recovery.

A November report from the nonpartisan Congressional Budget Office warned that inaction on the fiscal cliff could push the country’s unemployment rate from 7.9 percent to 9.1 percent, and trigger another recession.

The impact on Central Oregon families is wide-ranging.

“To the extent that the U.S. could fall into a recession, Oregon will too,” said Josh Lehner, an economist with the Oregon Office of Economic Analysis. “We have not missed a U.S. business cycle in a long time. If the U.S. goes, we’ll go.”

Background

The fiscal cliff is years in the making.

Dozens of tax breaks considered as one-year relief have instead been extended for several years, like the payroll tax cut, alternative minimum tax deductions and business tax write-offs.

Sweeping tax cuts in 2001 provided relief for Americans but added to the U.S. debt.

President Barack Obama and congressional Democrats have sought in recent years to let part or all of those cuts lapse. But Republicans last year tapped into frustration over the country’s ballooning debt, exacerbated by Obama’s $800 billion stimulus package. A congressional battle last year over the national debt ceiling — the maximum amount the country can borrow — led to the creation of the fiscal cliff: program cuts and tax hikes thought so unappetizing that lawmakers would never let the combination become reality.

But that’s exactly what is on track to happen come Tuesday.

Confidence

The cliff could hit Oregonians in two distinct ways, said Ralph Cole, senior vice president of research with Portland financial consulting firm Ferguson Wellman Capital Management.

The first comes from the cuts and tax increases themselves, he noted. Ninety percent of Americans would be impacted by the tax increases and cuts, according to a study by the Tax Policy Center. The average household would pay about $2,200 to $3,500 more in taxes without a fiscal cliff agreement, the study reports.

But confidence in the economy, or a lack thereof, could have a wider-ranging impact in the long term, Cole said.

“In my opinion, the cliff itself isn’t so much the problem as it is the inability (of Congress) to deal with it in a timely manner,” he said. “At that point, when investors see the government struggling for so long, this becomes a capital markets event.”

In other words, a slowdown in economic activity could frighten investors. Less investment activity means less capital for businesses, which could temper hiring plans in 2013 and beyond.

Consumer confidence and expectations dipped in December, according to a report Thursday of the Conference Board Consumer Confidence Index, which has tracked market conditions and consumer expectations since 1985. Those decreases were more severe than expected and came despite positive signals in the U.S. housing market and a four-year low in new unemployment claims.

“So much of the economy is about confidence, and there could be a real impact if confidence drags,” Cole said. “Our economy is only growing at about 1.5 or 2 percent of (gross domestic product). If we did go over the cliff, what that means by our estimate is about a 3.5 percent hit to GDP. … It would start the ball rolling to a slowdown in economic growth.”

Delayed impact

If Tuesday arrives without a deal, most Americans’ tax rates will automatically be recalculated at the higher levels. State and federal departments will have to downsize their budgets for education and human services programs.

But that doesn’t mean Oregonians will feel the pain right away, said Tim Duy, senior director of the Oregon Economic Forum and University of Oregon economist. They may not feel them at all, if Congress reaches an agreement some time shortly after the new year.

“Dec. 31 is not a drop-dead date,” Duy said.

If a deal is made a week or two after Jan. 1, the higher tax rates would only affect middle-class Americans for that small period of time, so the total tax burden would hardly be felt, Duy said.

“Most of these things can be dealt with retroactively within the first month, even a couple of months later,” he said. “But an argument out there is the longer it takes to reach a resolution, the more business confidence in particular will suffer and maybe the pace of spending will slow.”

Awaiting the ax

Meanwhile, educators and human services providers are bracing for cuts.

Bend-La Pine Schools Superintendent Ron Wilkinson told The Bulletin earlier this month that the district would receive about $500,000 less in funding for children in poverty. He called those cuts “devastating.”

Social services like the Supplemental Nutrition Assistance Program, which provides food stamps for low-income Oregonians, are on the chopping block, part of the large reduction in discretionary spending. Those cuts are toxic for the middle class when combined with the tax increases, said Liesl Wendt, co-chair of the Human Services Coalition of Oregon.

The average weekly unemployment check in Oregon was about $300 last year, according to state figures. For the long-term unemployed, losing access to those benefits would be crippling, Wendt said.

“You have families in Oregon that have been struggling for years. And especially in rural Oregon, it’s not like a lot of new jobs are coming in,” she said. “This state has a lot of fragile people economically. … There just isn’t any extra room left” to cut services.

Little guidance from opinion polls

There’s a reason neither side wants to give ground. The two parties represent a divided and inconsistent America. True, Obama just won re-election. But voters also chose a Republican majority in the House.

Remember: Republicans and Democrats alike say they are doing what the voters back home want. But neither side has a clear advantage in public opinion. In an Associated Press-GfK poll, 43 percent said they trust the Democrats more to manage the federal budget deficit and 40 percent preferred the Republicans. There’s a similar split on who’s more trusted with taxes.

About half of Americans support higher taxes for the wealthy, the poll says, and about 10 percent want tax increases all around. Still, almost half say cutting government services, not raising taxes, should be the main focus of lawmakers as they try to balance the budget.

When asked about specific budget cuts being discussed in Washington, few Americans express support for them.

President Barack Obama, meanwhile, wants more temporary economic “stimulus” spending to help speed up a sluggish recovery. Some lawmakers say the nation can’t afford it.

— The Associated Press