The Fiscal Cliff

Introduction

In the United States Politics, the Fiscal Cliff is a presumption that is likely to happen if a set of laws does not change. It is the term used to describe the instability of the US economy by the end of 2012, when the provisions of the budget control act will go into effect. The midnight of 31st December is deemed to be the starting point of a two percent increase in tax paid by all workers in the United States. It is presumed that the laws cause tax increases, spending cuts and reduction of the budget deficit. The only way to get long term economic growth in the United States in 2013 is through debts and reduction of the budget deficit. The Fiscal Cliff is the end of massive profit margins for so many businesses in America. Therefore, it is an extremely detrimental thing to happen to the United Nations in the near future, in the beginning of 2013. The Fiscal Cliff gets characterized by many tax deductions from the American citizens. These are mainly deductions on the debt sealing the deal of 2011, tax cuts resulting from financing of government programs and taxes related to the Obama’s Health care law.

History of the Fiscal Cliff

The Fiscal Cliff has a history of a body of laws made in the American History. These laws are made with regard to improve the economic state of the Unite States and to settle their external debts. In December 2010, during the Lame duck session, the United States Congress passed the Unemployment Insurance reauthorization, Job Creation Act of 2010 and the Tax Relief. This legislation allowed the Bush tax cuts remain for another two years. Also, these Legislations have patched an Alternative Minimum Tax that could begin in the year 2011. The Employee Social Security Payroll Tax is another deduction that came along with this law. This has resulted to an economic strain among the Americans (Benzinga, 2012). The Middle Class Tax Relief came together with the Job Creation Act in 2012 to extend an additional year. This extension reflected to an extension of the Federal Unemployment benefits and a concurrent freeze on the Medicare physician payments.

To resolve the debt ceiling crisis, the congress passed the budget control act on 2nd August 2011. This act had a provision of the Joint Select Committee, which was formed with the main aim of reducing the deficit of the United States budget. This was also known as the super committee. In their work plan, they sought to decrease the budget deficit of the United States by $ 1.2 trillion within a period of approximately ten years. The failure of this committee to achieve this target that was in their work plan would result to incorporation of more taxation from the United States citizens to help them to settle these debts (Sahadi, 2012). This committee failed, and an automatic across the board cuts resulted. This was an extra burden to the United States tax payers. The act that resulted had a provision that the domestic and defensive spending should be split. Also, for the families whose total annual income is more than $ 250000 were imposed new taxes that should start around the same time. Unless Legislations are passed by 31st December 2012 the American taxpayers are expected to continue be subjected to the AMT deductions.

The Idea of the United States reaching the Fiscal Cliff comes with the making of several laws in the United States congress. These laws include the Expiration of the Bush tax cuts which got extension by president Obama in the Tax Relief Act, the Unemployment Insurance Reauthorization and the Job Creation Act of 2010. Bush made the tax deductions so that he could cover the budget deficit that resulted from the wars he financed during his reign. This had a considerable impact on the national debt. These effects are still felt in the US up to date. In fact, they are the key causative factors causing the occurrence of the Fiscal Cliff on January 2013.  The budget control act of 2011 also directed the across the board spending cuts which came with an intention to fund government programs (Dowd, 2012). The provisions leading to the Fiscal Cliff in the United States are inevitable without a new policy coming in to design a possible way of settling the debts of the Federal government and settling the budget deficit. These provisions aim to increase taxes and reduce the spending of Americans in an attempt to settle government debts and at the same time stabilize the budget with the limited available capital.

Economic Consequences of the Fiscal Cliff

If the current laws that are planned for 2013 would go into effect, there would be a dramatic impact on the economy of the United States. These laws may have a positive impact on the United States federal government since it would reduce spending and budget deficit by an estimate of $ 560 billion. However, these policies would result in negative economic growth of the United States economy. The economic recession experienced would be by 4% points. Economic enemies such as unemployment would be massive in the United States with the introduction of the polices. The unemployment in the United States society may not augur remarkably well. There is likely to be an increase in immorality unlawful ways of making a living. Hence, crime rates in the 2013 are likely to be rampant due to the unemployment.

The introduction of these laws in the United States would result to a loss of about $ 280 million dollars from the United States economy. This is a massive loss since this amount of money could be used to fund government projects such as medical care and financing peace keeping operations.  The expiration of the Obama payroll tax holiday and the emergency unemployment together with the budget control act would lead to a loss of $125, $ 40 and $ 98 million dollars respectively (Cohen, 2012).

The cost of indecision among the law makers in the United States will also hit the US at the stake of 2013. The indecision will have broad effects in businesses since they expect changes in the 2013. This reflects to an increase in the losses incurred by businesses due to their decreased performance. A lot of time is being wasted, planning for the businesses policies to make the businesses survive the wake of 2013 with the Fiscal Cliff expected to hit the United States. The Fiscal Cliff will be an immediate disaster and its effects will be felt not only in America, but also in the rest of the world. Charitable organizations in the United States, such as the International Committee for the Red Cross may have trouble while funding their projects. This means that America will not be able to fund so many projects it has in Diaspora. The same gets reflected with regard to the performance of the countries that rely so much on the aids from the United States. These countries will fair dismally in terms of their economy since their budgets can no longer get boosted by the US (Barone, 2012).

Policy Proposals

To check the Fiscal Cliff, the Lawmakers in the United States have several courses of action, in the quest to make laws preventing the Fiscal Cliff from befalling the United States. The republicans in congress have made a proposal to extend the Bush tax cuts. The extension of these cuts between the 2013-2022 periods may reflect an additional 3.18 trillion to the national debt. When this gets related to the foregone tax revenue of $ 2.74 trillion, the difference between these two values shows a timely increase. Therefore, the Congress budget Office should make policies that are visionary and seek to offset the deficit in the United States budget. The state of the current political surrounding in the United States may be unable to change anything concerning the Fiscal Cliff (Benzinga, 2012). This is because Presidents Obama’s government has significantly contributed to the existence of the Fiscal Cliff. This problem is not a new predicament in the United States the legislators have been having 3 years to change the issue. Ironically the situation has turned to be even worse with Obama’s legislation adding the US Federal government debts.

The US government should seek to create policies to curtail the possibility of economic recession ahead by reducing the tax cuts being made on American citizens. Cancelling some of the taxes that are scheduled into the laws and policies that are taking effect from January 2013 would be a possible way of changing this problem. The disadvantage of this option is that the debt of the United States will continue to grow. The other policy option that the congressmen have is to address the budget deficit issue to a limited expense. However, this policy would require more time and a modest impact would be visible in terms of economic growth (Benzinga, 2012). This is the policy that is most likely to occur since the United States will consider rearranging its priority. The settling of the government debts in several phases is the issue that the United States is likely to arrive. Therefore, the policy options that get arrived at by the leaders and legislators in the US should be fast and protect the economic interests of the US citizens instead of individual priorities.

The policy predicament makes it hard to show whether the current government in the United States will be able to reach amicable decision to fall off the Fiscal Cliff. President Barrack Obama and John Boehner are likely to find a way to abandon the Fiscal Cliff issue. Since this issue is a product of their own creation, they may decide to pass a resolution to fund the government on a temporary basis. The policy they are likely to adopt puts America’s economic health at stake. This is because the congress and President Obama know that they can be seriously blamed for the occurrence of the Fiscal Cliff. Therefore, the decisions arrive at when evaluating policy options are incomplete or offer a temporary solution (Benzinga, 2012).

Conclusion

In conclusion, it is unquestionably vivid and clear that the Fiscal Cliff will have a detrimental effect in the economy of the United States at large. Therefore, there is an ultimate need for the legislators in the United States to combine efforts, in attempts to formulate the possible way out of the Fiscal Cliff. The ways out would serve as the principal landmarks to save the United States from economic recession characterized by unemployment and low profit margins from various organizations in the United States. The developed country such as the United States requires to be ready for the occurrence of such crisis in its economic future. The United States should consider investing more on educating their citizens and leaders on the best ways to manage the economy. Therefore, a lot should be done to save citizens of the US from economic exploitation by the laws made by their own leaders.