The 2013 Fiscal Cliff

Topics: Taxation, George W. Bush, Tax Pages: 5 (1680 words) Published: January 10, 2013

Americas debt has been growing dramatically for years. The result of this tremendous growth is making the U.S. be dependent on foreign countries, like China, and is making our country's credit rating lower with a result such as the value of bonds. These bonds are used to finance government operations and increase interest rates. The challenge is this: to balance the budget in a way that helps economic recovery and restructures government expenditures.

Towards the end of Clintons presidency, the U.S. debt stood at 5.66 trillion dollars. Since then, the debt is heavily increasing. After the recession in 2008, the debt stood at $10.7 trillion dollars. Today, the U.S. debt is over 16 trillion dollars. By the end of 2012, the U.S. government will have more debts than the economy can make in a year. Last year, the federal government spent 3.6 trillion dollars but only took in 2.3 trillion, leaving 1.3 trillion deficit to be borrowed. The top three reasons for these deficits the U.S. is in are Mandatory Spending, Defense Spending, and Non-Defense Discretionary Spending.

With the economy having 16 trillion dollars in debt, there is a proposed "fiscal cliff" as Ben Bernanke put it. The fiscal cliff will consist of 600 billion dollars in tax increases and spending cuts. Washington has been proposing ways around the fiscal cliff for weeks but nothing is changing so far. Peter Schiff says "Our economy is so screwed up from years and years and years of bad monetary and fiscal policy that it's going to be painful to correct that problem. But we have to do it."

Event occurring during crisis

In 2001, President Bush and congress passed tax cuts, These cuts went all the way through 2006. The President and the leaders of Congress wanted to rewrite the tax code permanently, but after the 2006 bill there was an expiration date for the bill in 2010. The Republicans lost control of Congress in 2006, them and the Democrats have been slappin each other up since. The Republicans were pushing to permanently break taxes and the Democrats wanting to end them for upper-income households. In 2010, President Obama and leaders of the Republican party came across a deal that extended them for two more years to support our fragile economy. In the 2012 Presidential campaign , President Obama argued to end them with an income over $250,000, his opponent, Mitt Romney, said that doing so would hurt small business and job growth. Immediately after Obama’s re-election, the fiscal cliff raised attention. The expiration date of the "Bush Tax Cuts" was December 31 of 2012, the day before spending cuts were scheduled to take hold. President Obama said he would deny any deal that didn't have higher tax rates for the wealthy. John Boehner, an Ohio Republican, said to increase income tax rates but would agree to any tax reforms that would increase revenue. Both parties have agreed on the 2001 tax cuts should be extended for all income under 250,000 dollars for couples and 200,000 dollars for individuals. Even the wealthiest would pay the low rates on earnings below that level.

Both parties have reached an agreement on allowing the payroll tax cut to expire at the end of 2012.  First for 2010, the payroll tax cut was made as a boost for workers by putting between 700 dollars and 2,200 dollars back into the worker’s pockets. The payroll tax deducted from employee paychecks was reduced from 6.2% to 4.2%.  The employer portion stayed at 6.2%.When the tax rises again in January 2013, it is said to contribute $95 billion per year to federal tax revenues.  However, Congress does give some speculation allowing the tax rate to return to its original rate. Legislators are stuck between the need to generate revenue and allowing tax cuts to expire. This will throw the economy into another recession.Today, individual funds from 2011 found that 35% spent additional funds that came from...
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