The term "Fiscal Cliff" is used to describe the problem faced by Congress at present. A combination of tax cut expiration and automatic cuts will take effect come January 1st if a plan is not produced to avert the situation.
Because of Congress's failure to come to an agreement in accordance with the Budget Control Act of 2011, which raised the debt ceiling but left open the ways to cut deficit spending. Since a bargain was not reached, sequestration will occur, which mandates across the board spending cuts. In addition, the Bush era tax cuts will expire, as will a 2% Social Security Payroll tax cut, and the expiration of federal unemployment benefits.
If Congress doe snot act, as before, the results could be very grim for our country's growth. It will have a very detrimental effect on an economy that is still shaky.
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| The effect of the Fiscal Cliff on GDP |
As you can see above, analysts have projected strong negative effects on our nation's GDP if we run over the Fiscal Cliff. The Tax Policy Center has stated that middle income families will pay, on average, $2,000 more dollars in taxes in 2013. The Congressional Budget Office (CBO) also anticipates increased unemployment where 3.4 million will lose their jobs.
That being said, the country cannot continue on the path it's on with regards to deficit spending. at least something needs to be done to curb our spending so that we get back on a sustainable debt track as our economy begins to rebound. Large deficit spending should really only be done it trying economic times, and we should try to steer clear of that now.
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| The effect of the Fiscal Cliff on Deficit |
