UNITED STATES OF AMERICA — Are you aware that it is quite likely the government will be forced to tame its wild spending binge? At the end of this year, several pieces of legislation will force congress to be fiscally responsible.

United States fiscal cliff

From Wikipedia, the free encyclopedia

The United States fiscal cliff refers to a large predicted reduction in the budget deficit^[1] and a corresponding projected slowdown of the economy if specific laws are allowed to automatically expire or go into effect at the beginning of 2013.^[2] These laws include tax increases due to the expiration of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the spending reductions (“sequestrations”) under the Budget Control Act of 2011.

Under current law, which mandates these tax increases and spending cuts, total federal revenues would increase 19.6% from 2012 to 2013 and total federal spending would be reduced less than 1%.^[3] The Congressional Budget Office (CBO) estimates revenues would rise from 15.7% GDP in 2012 to 18.4% GDP in 2013, returning to the historical average, while spending would fall from 22.9% GDP to 22.4% GDP, above the historical average of 21%.^[3] The deficit for 2013 is projected to be reduced by roughly half, with the cumulative deficit over the next ten years to be lowered by as much as $7.1 trillion. However, it is also projected to cause a double-dip recession in the first half of 2013.^[2]

Spending for federal agencies and cabinet departments, including defense, would be reduced significantly through 2022 due to the budget sequestration. Some major domestic programs, like Social Security, federal pensions and veterans’ benefits, are exempted.

The projected effects of these changes have led to calls both inside and outside of Congress to extend some or all of the tax cuts, and to replace the across-the-board reductions with more targeted cutbacks. It has been speculated that any change is unlikely to come until the period roughly between the 2012 federal elections and the end of the year. Additionally, the debate may be exacerbated by the expectation that the debt ceiling is expected to be reached before the end of 2012,^{[note 1]} unless “extraordinary measures” are used.^[4]

Nearly all proposals to avoid the fiscal cliff involve extending certain parts of the 2010 Tax Relief Act or changing the 2011 Budget Control Act or both, thus making the deficit larger by reducing taxes and/or increasing spending.

Budget deficits, projected through 2022. The “CBO Baseline” shows the effects of the fiscal cliff under current law. The “Alternative Scenario” represents what would happen if Congress extends the Bush tax cuts and repeals the Budget Control Act-mandated spending reductions beyond the end of 2012.