US Fiscal Cliff





US Fiscal Cliff

Fiscal cliff is an awaiting man made disaster in the United States of America (USA). It will officially effective as from the night of 31st, December, 2012. Even if there is a lot of disunity amongst the law makers regarding its implementation, Suzy suggests that they can decide to choose any of the recommended options (Calmes, J., 2012). These include adhering to the January proposal, cancelling some or all of these proposals or adopting an intermediary approach to address the proposed changes.

Hence, the scheduled tax increases and beget cuts will be introduced into the country without much opposition and adversely affecting the already strained US economy. Fiscal cliff aims at reducing the Federal Government’s expenditure and increase taxes for certain areas. In other words, there will be a great spending cut in some of the major areas such as military and Medicare doctors care. If this is effectively done, the government’s expenses will be cut by a very big percentage (Rosen, H.S., 2008). At the same time, the introduction of this policy will mark the end of the tax holidays and increase taxation by $. 7 trillion. Its successful enforcement will officially end the 2001-2003 tax cuts along side the Bush taxation policies.

Therefore, there will be an increment in government borrowing from the current $. 16.394billion. However, there are a lot of controversies surrounding this policy. Many law makers have different positions regarding how it should be done. While the fiscal drivers argue in favor of its enactment, several critics have come up to oppose the plan and view it as an ill informed ideology that will not improve the life of Americans, but jeopardize them (Michael, C. & Alm, R., 2009).

To the drivers, fiscal cliff will help in the reduction of Federal Government’s budget deficit by $. 560 billion. According to them, this will stabilize the economy and prevent the country from experiencing same economic recession which it had in 2011. This is a much undesired situation which caused a lot of problems including unemployment and undermined investors’ confidence. On the other hand, critics argue that this cliff will wreck a lot of havoc in this country. First, it is important to note that it is too rapid and huge to be effective in USA which is already facing lots of problems. Thus, it will not serve its purpose, but return the country to the past recessions.

AD-AS Graph

The above graph indicates that there will be a hard time ahead. Meaning, there will be unemployment and the loss of at least 2 million jobs. This is why people like Senator Murray Patty are openly opposed to it (Hellerstein, J.H. et al., 2011). However, I would like to recommend that this policy should not be implemented as scheduled. A part from its nature, there are a lot of controversies surrounding it. Hence, if rapidly implemented, it will not be able to serve its right role. Therefore, it should be upon president Barrack Obama and the Congress to consider deferring it until all the contentious issues are resolved.

I would like to recommend that the the ideologies of the Democrats and Republicans should not be taken for granted. Instead, they should be given enough time to deliberate over it and come up with amicable options. As William Gades emphasizes, all the issues concerning Bush taxation policies and Obama care must be agreed upon. Otherwise, it will not be advisable to implement the policy however appealing it may be (Bojas, G.J., 2007).

Conclusively, I would like agree that it is very important for the Federal Government of USA to come up with feasible measures to stabilize its economy. It is only through such a strategy that it will be in a position of addressing the numerous economic challenges facing its population. Otherwise, rapid implementation of this cliff in January will not be the best thing to do. It will end up damaging its growth, stock market and demoralizing investors.

Works Cited

Bojas, G.J. (2007) Labor Economics, Second edition. McGraw-Hill.Calmes, J. (2012). Recession Possible if Impasse Persists, Budget Office Says. The New York

Times.Hellerstein, J.H. et al. (2011) State and Local Taxation, Cases and Materials Eighth Edition.

Chicago: Chicago University Press.

Michael, C. & Alm, R. (2009) The myths of rich and poor: why we’re better off than we think.

New York: Basic Books.

Rosen, H.S. (2008). Public Finance. New York, New York: McGraw-Hill/Irvin.