Fiscal Cliff

Topics: Taxation, Tax, Taxation in the United States Pages: 5 (1930 words) Published: March 6, 2013
The Fiscal Cliff

By: Shannon Mannella

Macro W 6-8:45

What is the fiscal cliff? I asked myself this question before righting this paper. I though “why do I need to know about the fiscal cliff”, well I guess because I have to right about it. But seriously I think that there is no real answer to that question, I think that we all just pretend like we know what it is to move past that subject. Well at least it was a good laugh to think so. So the term fiscal cliff is a term they use to describe a bundle of momentous U.S. Federal tax increase and spending cuts that are due to take place at the end of 2012. That basically means the fiscal cliff is used to describe the meeting of two events that took place on December 31, 2012. Those two events are the expiration of almost every tax cut enacted since 2001 and a scheduled reduction in government spending. This means that the fiscal cliff has the tax cuts as one of its components. Of those taxes that are expiring some are the bush-era tax cuts, which were supposed to expire in 2010 but were, extend till 2012 by the tax relief. There is the Obama-era tax cut which includes increased child tax and earned income credits and it expanded the education credit. There is also Obamacare taxes, which has taxpayers earning more than $250,000, will pay more on their wages and their unearned income. The estate tax, expiration of the AMT patch, temporary payroll tax cut and extenders are just a few others to expire. Government spending cuts are another component which, include the Budget control act of 2011. Numerous amounts of the scheduled annual cuts will come from the national defense and the other have from the, you guessed it, non-defense, although almost 70 percent of the mandatory spending will be omitted. The extended unemployment benefits for the eligibility to start getting federal unemployment benefits will also expire. Another one would be the Medicare doc fix which allows the rate of which Medicare pay physicians will decline almost 30 percent at the end of 2012. Another considerable component of the fiscal cliff is the debt celling. The debt ceiling has a debt limit of how much outstanding federal debt the U.S. government can reach by law, and it is tapped out. The treasury is supposed to reach this borrowing capacity again during the year of 2013. I can’t grasp how it has come to all this but the fiscal cliff is in numerous ways the height of sequences of gradually contentious fiscal conflicts between the Democratic and Republican parties over the past few years. The debt ceiling endangered the country’s ability to reach its financial requirements which ended in a record downgrade in the U.S. credit ratings. Taxes and the role of the government are such a debate. I believe that Republicans have a preference for the spending cuts so the deficit will be reduced. Republicans are typically against tax hikes. They believe the tax cut boost economic growth and would give the government more revenue. Democrats usually believe that an increase in taxes should be used to negotiate and reduce long-term allotment of spending and they usually support more reductions in the defense budget. Nothing can come without consequences, and the fiscal cliff has a few. One of the biggest consequences that most Americans would be facing is that there would be an increase in the payroll tax. The payroll tax is now 4.2 percent and would increase to 6.2 percent. This would have an outcome of an additional $2,000 in taxes for all workers grossing $100,000. P resident Brock Obama has been insistent to preserve the tax cuts that were executed by President George Bush for Americans who gross less than $250,000; however Republicans are aggressively trying for $400,000. It is predicted by economists that if the taxes do in fact rise, the economic growth may split during the first quarter, and spending pullback can lead to a new recession that can cause the economy to decrease by .5 percent....
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