User:RoyGoldsmith/United States fiscal cliff
Overview
[edit]Background
[edit]During a lame duck session in December 2010, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This Act extends the Bush-era tax cuts for an additional two years, as well as authorizing a one-year reduction in the FICA payroll tax. (This was extended for an additional year by the Middle Class Tax Relief and Job Creation Act of 2012. This law also extended both the federal unemployment benifits and the freeze on Medicare physician payments.) If the Alternative Minimum Tax threshold is not indexed for inflation then, if taxes increase in 2013, the AMT will affect more taxpayers causing them to pay more.
In August 2011, Congress passed the Budget Control Act of 2011 to resolve the debt-ceiling crisis. This law provided for a Joint Select Committee (the "super committee") to produce bipartisan legislation by late November that would decrease the deficit by $1.2 trillion over the next ten years. Because the committee failed in its mandate, another part of the Budget Control Act directed across-the-board cuts (known as "sequestration"), split between defense and domestic spending, beginning in January 2013.
Effects
[edit]The Congressional Budget Office (CBO) estimates that, if these laws are not ammended or repealed by December 31, 2012 (called the "alternative fiscal scenario" by the CBO[1]), they would reduce federal spending by $103 billion and increase tax revenues by $399 billion (and another $105B "mostly in revenue") up through September of 2013 (the end of FY2013). With the effects of the economic slowdown caused by lower taxable incomes, this would amount to a net total of $560 billion, roughly half the $1.2 trillion FY2011 deficit.[2] The White House estimates that a family of four with an income of $50,000 to $85,000 would pay an additional $2,200 in federal taxes.[3]
However, this would reduce future deficits from an estimated 4.7% of GDP in 2021 to 1.2%.[4] Thus total deficit reduction could be as high as $7.1 trillion over the decade.[5] In the long run, lower deficits and debt should lead to relatively higher growth estimates. But, in the short run, real GDP growth in 2013 would likely be reduced to 0.5% from 1.1%. This would mean a high probability of recession (a 1.3% GDP contraction) during the first half of the year followed by 2.3% growth in the second half.[2][6]
- ^ Christina Hawley Anthony (March 13, 2012). "Updated Budget Projections: Fiscal Years 2012 to 2022". Congressional Budget Office. p. 3. Retrieved July 27, 2012.
- ^ a b Page, Benjamin (May 22, 2012). "Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013". Congressional Budget Office. Retrieved July 25, 2012.
- ^ National Economic Council (July 24, 2012). "The President's Proposal to Extend the Middle Class Tax Cuts". The White House. Retrieved July 26, 2012.
- ^ CBO-Long Term Budget Outlook Graphics-August 2012
- ^ Washington Post-E.J. Dionne-Why Doing Nothing Yields $7.1 Trillion in Deficit Cuts-November 2011
- ^ Stone, Chad (June 18, 2012). "Misguided "Fiscal Cliff" Fears Pose Challenges to Productive Budget Negotiations". Center on Budget and Policy Priorities. Retrieved July 25, 2012.