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The Fiscal Cliff
"The Fiscal Cliff" – What is it? What can be done to avoid it?
“Fiscal cliff” is the term being used in Washington, D.C. and by countless media to describe the deadline for the collision [of the effects] of federal tax laws/rules and budgeting laws that the U.S. government will face at the end of 2012.
The specter of the Fiscal Cliff hangs over the financial markets as a Sword of Damocles, threatening to derail the continued recovery in the US and foreign markets. It dominates political talk. It creates uncertainty and great concern among government leaders at all levels. And it complicates matters when moderate governmental leaders discuss tax reform and the continued implementation of provisions of the health care reform package (Obamacare).
Simply stated, it is when the various provisions of the Budget Control Act of 2011 and the new Affordable Care Act ("Obamacare") are scheduled to go into effect and the scheduled expiration of various tax cut measures will begin to impact personal and business taxes.
These laws include:
· mandating the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers);
· the end of certain tax breaks for businesses;
· shifts in the alternative minimum tax (AMT) that would increase taxes for millions of American families, especially in the middle class;
· the end of the tax cuts dating from 2001-2003;
· the beginning of taxes imposed related to President Obama’s health care law, and,
· implementation of spending cuts agreed upon as part of the debt ceiling deal of 2011 (the previous drama of the Fiscal Cliff), which could result in deep funding reductions to more than 1,000 government programs including the Department of Defense.
In dealing with the fiscal cliff, U.S. lawmakers have a choice among several options, most of which will require some type of compromise between the parties in power.
· Do nothing – let the cuts in Federal spending stand and the tax increases go into effect – possibly send the country back into a recession; but over time cutting the deficit in half.
· Cancel everything – or near everything and continue as we are going now into a fiscal spiral, with mounting debt that could mirror that facing the countries of Europe. Continue to spend more than is collected – because of fear of cutting spending or raising taxes.
· Compromise – evolve a combination of measures to raise some taxes and reduce some spending while all parties claim victory for the people.
The stakes are very high! The fiscal future of the country and the extension of the world finance and many other nations' economies hang in the economic balance to be achieved...or not.
Accountability-Central follows the interactions between the various power centers – the Republican House and Senate leaders; the Democratic House and Senate leaders; the President and his advisors -- and of course, the people that their decisions will impact the most. All sides will be presented...the heroes praised, the villains booed and the plight of the people explained in AC Hot Topic – “The Fiscal Cliff.”
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