Fiscal cliff looms high

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Financial meltdown, debt ceiling crisis, and now fiscal cliff. Since the recession, a number of creatively named spending and budget hiccups have befallen the U.S. government.

The most recent crisis is the fiscal cliff.

The term was created earlier this year to describe a set of foreboding tax hikes and government spending cuts that will occur at the end of this year.

Like any major political issue, there are several different opinions on the severity of the fiscal cliff.

Some pundits have claimed that tax burden on businesses and families will surely cause a recession, and others believe that the supposed sheer drop of the cliff will actually turn out to be a gentle slope and will cause no adverse effects.

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The last surplus the U.S. government had was back in 2001. Ever since then, the government has been running at a deficit.

This constant shortfall has caused the national debt to rise from $6 trillion in 2001 to its current level of $16 trillion.

To put this amount into perspective, consider the Gross Domestic Product for the U.S. was $15 trillion in 2011.

At the beginning of his first term, George W. Bush offered significant cuts to payroll, estate and income taxes.

During his term, he also started two wars, but did not raise taxes to pay for them.

The recession and the economic stimulus packages only worsened the debt.

The Bush era tax cuts, which were extended by Obama in 2010 are set to run out at the beginning of 2013.

This is expected to raise government tax revenue by $536 billion dollars.

According to the New York Times, this would cause an average increase of $3,400 in taxes per family, and the median household would face a $2,000 increase.

One fear of the leaders in government is that the increase on capital gains will cause many investors to pull their money out before the end of December.

It is unlikely that the minor crisis of the fiscal cliff will cause a recession.

The current uncertainty of the government is what is really responsible for any negative effects on the market.

It is a shame that Congress has waited so long to take care of the situation. The threat behind the fiscal cliff is not an impending recession.

CEO of Berkshire Hathaway, Warren Buffett, has compared the fiscal cliff to economic setback similar to Hurricane Sandy or Hurricane Katrina.

Recessions are not predicted until it is much too late to do anything about them.

The elected officials of the government are smart enough to know they do not want to be held responsible for a recession, so they will come to a compromise.

The real threat is the economic uncertainty created by the U.S. government. The purpose of government involvement is to restore some certainty.

The trend of Congress to spend money without properly raising it is fiscally irresponsible.

The fluid nature of U.S. tax laws also adds to the uncertainty.

Unless something extreme happens in the next two months, Democrats and Republicans will compromise to reduce the severity of the fiscal cliff.

The greater problem of the government creating greater uncertainty will not be resolved until something more drastic occurs.

Author: Ethan Mitra

Bio info coming soon!

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