In advance of the for certain rumors, political rhetoric and just plain BS coming our way lets look at what the Congressional Budget Office says about the fiscal cliff coming in 2013 when there is a combination of tax increases (via Obamacare) and expiration of current tax rates.
Policymakers are facing difficult trade-offs in formulating the nation’s fiscal policies. On the one hand, if the fiscal policies currently in place are continued in coming years, the revenues collected by the federal government will fall far short of federal spending, putting the budget on an unsustainable path. On the other hand, immediate spending cuts or tax increases would represent an added drag on the weak economic expansion.
In fact, under current law, increases in taxes and, to a lesser extent, reductions in spending will reduce the federal budget deficit dramatically between 2012 and 2013—a development that some observers have referred to as a “fiscal cliff”—and will dampen economic growth in the short term. CBO has analyzed the economic effects of reducing that fiscal restraint. It finds that reducing or eliminating the fiscal restraint would boost economic growth in 2013, but that adopting such a policy without imposing comparable restraint in future years would have substantial economic costs over the longer run.
How Substantial is the Fiscal Restraint in 2013?
CBO estimates that the combination of policies under current law will reduce the federal budget deficit by $607 billion, or 4.0 percent of gross domestic product (GDP), between fiscal years 2012 and 2013. The resulting weakening of the economy will lower taxable incomes and raise unemployment, generating a reduction in tax revenues and an increase in spending on such items as unemployment insurance. With that economic feedback incorporated, the deficit will drop by $560 billion between fiscal years 2012 and 2013, CBO projects.
If measured for calendar years 2012 and 2013, the amount of fiscal restraint is even larger. Most of the policy changes that reduce the deficit are scheduled to take effect at the beginning of calendar year 2013, so budget figures for fiscal year 2013—which begins in October 2012—reflect only about three-quarters of the effects of those policies on an annual basis. According to CBO’s estimates, the tax and spending policies that will be in effect under current law will reduce the federal budget deficit by 5.1 percent of GDP between calendar years 2012 and 2013 (with the resulting economic feedback included, the reduction will be smaller).
What this all means is that Congress will do nothing before the election for fear of being perceived as being on the wrong side of the solution and between the election and next inaugural Congress will do whatever it takes to make itself look good. Which means that nothing will be done that combines long-term fixes with short-term reality. I hope you are putting that 2% salary boost you are receiving from the reduced SS payroll tax to good use, because you are going to need it.
If you are really curious, you can read the full story HERE
Related articles
- CBO: Federal debt to double in 15 years (washingtontimes.com)
- Staring At The “Fiscal Cliff” (wallstreetpit.com)
- CBO Analyzes Effects of Fiscal Restraint Scheduled Under Current Law (bespacific.com)
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