Fiscal cliff is a confusing term that denotes the decline in the budget deficit of the US government, expected in the beginning of the year 2013. The US fiscal cliff has been successfully averted in the nick of the moment as the House of Representatives voted to approve a bill. Let us have a deeper look into the Fiscal Cliff – a term that has a potential of changing the economic discourse of the United States.
It is apparently seen as the effect of the US government policies or more specifically the Budget Control Act of 2011. The congressional Budget Office has predicted a sharp decline in this government deficit by 2013 which further might lead to a subtle inflation towards the mid 2013.
This estimated Fiscal Cliff of 2013 is a product of increase in tax and reduction in the public spending. The changes that are to take place are various tax breaks for businesses, roll back of Bush Tax Cuts and reduction in payroll tax cuts, among others. This is also the beginning of taxes on Obama’s Health Care law.
It began with the Bush Tax Cuts of around $1.7bn of 2001, which were to expire by 2011 but after a deal struck with Republicans the tax cuts were extended for two more years. Later in 2011 Obama administration’s efforts to raise the borrowing limits of the US government or the ‘debt ceiling’, which is decided by statutes, to handle the increasing budget deficits, led to disagreements with republicans over the same. This led to a compromise that extended the debt ceiling till 31st December 2012. Hence with the commencement of 2013, this means, the US economy will face major changes.
The overall Fiscal Cliff deal, by now, reveals that the taxes are to rise for the families earning above $450,000 and for the individuals earning more than $400,000 a year. Whereas on the other hand, taxes are expected to remain the same, which is 10%, for those earning under $9,000. The Bush Tax cuts remain permanent for all except for the 2% richest American citizens. Various credits and benefit programs are extended further for a certain time like the unemployment benefits, credits for attending university and child credit, among others.