The Fiscal Cliff, set to affect millions of families and businesses across America, is looming. As pressure mounts on politicians to re-assess the proposed cuts, fears of a harmful effect on the U.S. economy are mounting.
What is the Fiscal Cliff?
Set to come into effect in January, the so-called fiscal cliff refers to spending cuts and tax increases planned by the government. Federal income and Social Security taxes are scheduled to be increased, and cuts in both public and defense spending are also lined up. Tax increases are predicted to hit 90% of workers, with the top 20% of earners expected to owe as much as $14,000 more in their tax bills.
Economy: Public Concern is Growing
A recent poll by Gallup found that 75% of Americans believe tax increases will have a negative effect on the economy as a whole, and that 64% expect their personal finances to suffer.
The survey found that households on low incomes were the most concerned about the proposed legislation, especially those with dependent children. 68% of households earning less than $36,000 believe that their personal finances will be harmed, and 67% of families with children expecting their overall income to be cut.
With the deadline for Obama and Republicans to agree to revisions of fiscal legislation less than three weeks away (December 31st), opposing political parties are among the most concerned – 75% of republicans expected the fiscal cliff to be harmful to their personal financial situation. 58% of Democrats share their concern; although a lower figure, it is telling that more than half of Obama’s own supporters recognise the need for the proposed cuts to be revised.
How Might the Economy Suffer?
Amidst general fears for the economy are specific concerns regarding the risk of America plunging back into recession. Defence spending cuts will directly impact the military supply chain, leading to a reduction in both jobs and production, and corporate tax increases could also see a dip in employment as companies prepare to spend more on their annual tax bills.
Tax increases and financial aid reductions for families across America are also likely to negatively impact the economy, reducing public spending power and putting economic growth at risk.
Fiscal Cliff: Which Households will be Affected?
Families reliant on government help, such as food stamps, will find themselves out of pocket if the cuts go ahead, with current plans set to disqualify up to 2 million US residents from the scheme, despite recent increases in demand. Of those surveyed, 64% of unemployed participants expected to be adversely affected.
The majority of working Americans will see an increase in their tax bill – current legislation which has prevented tax increases over the last few years will, unless fiscal policies are revised, be lifted, leading to higher rates for nearly every working individual, regardless of income. 65% of employed survey participants anticipated their personal financial position to be harmed by the fiscal cliff.
Obama Administration: Fiscal Policy Pressure
Growing public concern is serving to put additional pressure on Obama’s administration, which has, so far, failed to address the issue of the fiscal cliff in a manner that will satisfy fears for the continually struggling American economy.
AP. How much will my taxes go up? (2012). Washington Post. Accessed December 12, 2012.
Bowean, L. Food Stamp Families Fear Fiscal Cliff Cuts. (2012). Chicago Tribune. Accessed December 12, 2012.
Gallup. Americans See Fiscal Cliff as Harmful to U.S. (2012). Accessed December 12, 2012.
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