Fiscal Cliff

1.   The ‘Fiscal cliff’ is used to describe the problem that the U.S. government will face at the end of 2012, which will result in tax increases for workers, the end of some tax cuts for businesses, and the beginning of taxes related to Obama care. This will have a great impact on the U.S. economy. This has been an ongoing battle between the right and the left of this country

2.   The impact on the economy could be dramatic. While the combination of higher taxes and spending cuts would reduce the deficit by an estimated $560 billion, the CBO estimates that the policies set to go into effect would cut gross domestic product (GDP) by four percentage points in 2013, sending the economy into a recession. At the same time, it predicts unemployment would rise with a loss of about two million jobs. In all, the tax increases and spending cuts make up about 3.5% of GDP, with the Bush tax cuts making up about half of that, according to the J.P. Morgan report. The CBO anticipates that this will cause households and businesses to begin changing their spending. Because of the loss of jobs, tax increases, and the bad economy, this will cause businesses to change their spending and hiring behaviors. Many people may start to buy less products or buy cheaper items since they want to save money. Small businesses will probably start hiring less people and may fire some people since they aren’t getting enough business and their taxes are going up.

3. In dealing with the fiscal cliff, U.S. lawmakers have a choice of how to deal with the fiscal cliff:

a. They can let the current policy scheduled for the beginning of 2013 and do nothing which will have a many of tax increases and spending cuts that are expected to worsen economic growth and drive the economy back into a recession. The plus side of this that the deficit would be cut in half.

b. They can also cancel all of the scheduled tax increases and spending cuts, but have the president’s policy of raising taxes on people earning $250,000 or more. This could cause businesses to hire less as well since they are the ones getting taxed. America’s debt will continue to grow.