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One of the key points in the recently concluded election was about how the “would be president” then would tackle the ominous fiscal cliff. But many, especially non Americans, are still unfamiliar with the term.
The term “Fiscal cliff” was an expression that was used throughout the history especially on budget talks. According to research, the earliest reference to the term was traced back in 1957, when it was used in a New York Times article about home ownership.
At present, the term denotes the effect of a number of laws in the United States which may lead to spending cuts and tax increases. The whooping $7 trillion in spending cuts and tax increases was scheduled to take place at the beginning of this incoming year, 2013, which is approximately 35 days from now. The buzz word first entered the scene during a speech by Federal Reserve Chairman Ben Bernanke to the House committee on Financial Services last February 29,2012.
“Under current law, on January 1st, 2013, there is going to be a massive fiscal cliff of large spending cuts and tax increases. I hope that Congress will look at that and figure out ways to achieve the same long run fiscal improvement without having it all happen at – at one date.”
The laws involved are the Bush tax cuts and the Budget Control Act of 2011. The Bush tax cuts or Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 is an act centered on the two-year extension of the Economic Growth and Tax Relief Reconciliation Act of 2011 provisions which was intended to delay the return of tax rates similar to the Clinton administration. It was passed by the United States Congress back in December 16,2010 and was signed as law by President Barack Obama a day after. It is scheduled to expire at the start of 2013 which would result to tax increases.
Meanwhile, the Budget Control Act of 2011 is a federal statute and was signed as a law by President Barack Obama on August 2,2011 which mainly focuses on debt ceiling and deficit reduction. It is also scheduled to expire almost the same time as the Bush tax cuts and would result to spending cuts.
The two effects would lead to a reduction in the budget deficit in 2013. The abrupt deficit would then lead then to an increased recession on the same year which would greatly damage its present economic recovery.