Fiscal Cliff: The US Economy And All About The Fiscal Cliff Deal

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Fiscal Cliff: The US Economy And All About The Fiscal Cliff Deal

Towards the end of the year 2012, a two-word phrase dominated the US economy and political news, the Fiscal Cliff. The effects this would have were the concerns of many. This would have resulted into an increase in taxes and increased joblessness brought about by the minor US economic downturn that would have followed. Today, most people are trying to understand what impact the fiscal cliff deal will have on their lives and especially taxes.

However, a deal passed in the beginning of 2013 reduced the impact of the fiscal cliff. If you would like to know the basics of the fiscal cliff and the fiscal cliff deal that prevented it from happening, here are some basic information about the `would have been’ fiscal cliff to help you understand this concept.

What Is The Fiscal Cliff?

The fiscal cliff was predicted to hit the US economy at the end of the year 2012 and the beginning of 2013. The term fiscal cliff refers to a sharp reduction in the budget deficit that would have resulted from the increase in taxes and decrease in government spending if the previous laws were in place. The fiscal cliff would have been the result of the expiration of the tax cuts passed by former president George W. Bush and the start of the tax increases planned to finance President Obama’s new healthcare program.

A budget deficit occurs when the budgeted funds exceed the actual funds available. This means that the government plans to spend more than it has. Economists predicted that the budget deficit would go down by half in 2013. This would have resulted into a minor recession in 2013 with an increase in unemployment and rapid inflation. To the American citizens, this would have resulted into a dramatic increase in taxes, reduced disposable income and therefore reduced spending.

What Prevented The Fiscal Cliff and Its Impacts from Happening?

So why didn’t the expected fiscal cliff occur as predicted? The fiscal cliff would have had a negative impact on the US economy and the life of the American citizens. To avert this dramatic and negative effect at least partially, the president passed the American Taxpayer Relief Act of 2012. The passing of this Act reduced the planned tax increases, reduced the expected decline in the deficit figure and diluted the effect on the expected short-term US economy.

What Does The American Taxpayer Relief Act of 2012 (The Fiscal Cliff Deal) Mean?

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