Sample Essay on the United States Fiscal Cliff

United States Fiscal Cliff

The United States fiscal cliff refers to a situation that existed in the U.S in January 2013 when several laws enacted earlier came into effect simultaneously. This decreased government’s spending while increasing taxes. Generally, fiscal cliff refers to a combination of across-the-board spending cuts by the government and expiring tax cuts.

In the U.S, this was scheduled to take effect on 31st December 2013. Fiscal cliff was necessitated by the idea that if the government allowed the two events to continue without planning, they would affect the economy that was already shaky at that time.

The government feared that this would take the economy back to the recession period as it reduced household incomes, undermined investor and consumer confidence as well as increasing the rates of unemployment in the U.S. Economists also predicted that fiscal cliff would have significant impact on the reduction of the deficit of the federal budget.

Experts warned that if president Obama and the Congress did not act to avert the perfect economic storm with legislative changes, then America would have fallen over this fiscal cliff. They also noted that the legislations would result in increased taxes to a level that had not been seen in America for the past 60 years.

According to a report by the Tax Policy Center, middle-income households would pay $2,000 and above on average by 2013. Several itemized deductions would have also been subjected to a phase-out. The legislations were aimed at reducing popular tax credit such as child tax credit, American opportunity credit and earned income credit.

The impact of fiscal cliff would include decreased spending by the government via sequestration and increased tax rate. Eventually, this would have caused a deficit in the operations of the government. This deficit refers to the amount of spending that exceeds the revenue collected by the government. In 2013, the government aimed at reducing this amount by half.

The laws enacted earlier that led to fiscal cliff projected an increase of 19.63% in revenue and a reduction of 0.25% of government spending between 2012 and 2013 fiscal years. According to the Congressional Budget Office, the impact of fiscal cliff would have been a mild recession and higher unemployment as well as a stronger labor market and increased growth rate for the economy.

Fiscal cliff was addressed on the side of revenue by the American Tax Payer Relief Act, 2012 through the implementation of low tax increment as compared to the tax cuts of the Bush administration.  As of the early 2013, government spending was to be adjusted.

The public attention was drawn to the fiscal cliff by the widespread media coverage of the issue in 2012. People were made aware of the economic and fiscal impact of the fiscal cliff through the media. A compromise bill was passed by the U.S senate on 1st January 2013. The same legislation was passed by the U.S House of Representatives that evening and in the next day, President Obama signed it making it a law.

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