Federal Budget 2012
The budget for the federal government is known as the federal budget. It is determined yearly and it forecasts the amount of money that will be spent on a number of expenses in the upcoming year. Fiscal cliff is the popular term used to describe a situation that the United States government will face at the end of 2012 when terms of the Budget Control Act of 2011 will go into effect. The congress will not come up with a compromise. It will effect the federal budget 2012 as it is which will negatively affect the economy.
For the year 2012 which ends on December 31st, the deficit for the federal budget will amount to $ 1.1 trillion. This projection is down slightly from $1.2 trillion deficit projected by CBO in the previous year. At 7.4 percent of gross domestic product (GDP), this year’s deficit will be three fifths as large as the deficit in 2011 when measured in comparison to the economy. Federal debt held by the public sector will amount to 74 percent of GDP by December 31st. This will be the highest level since the year 1960. At the end of the year 2008 there was a financial crisis and an economic recession. CBO predicts that the economic recovery will continue at a moderate rate for the remaining part of this year.
According to CBO statistics, the rate of inflation on consumer prices will remain low. CBO projections are designed to serve as a benchmark that policy makers use to make possible changes to laws. The outlook for the budget deficit ,federal debt and the economy are very uncertain now because major changes to tax and spending policies are scheduled to take place at the end of this year. CBO has also projected that many policies that have been in existence will continue being enforced. Some policy changes that will occur in the following calendar year include Job creation act , unemployment insurance reauthorization and Tax relief are set to expire. Provisions that extended reduction in tax and increase in tax credit and increase deductions initially enacted in 2009 will also expire.
The White House and congressional leaders will confine for a meeting this week. It is likely that the White House and Congress intend to resolve the deficit reduction issue that has brought America to the unfortunate metaphorical and topographic situation. This week we saw many main actors staking out positions . As expected there was more talks about expected tax provisions than the threatened across the board spending cuts. In President Obama’s news conference on November 14th he reiterated his belief that he has a mandate to increase tax for tax payer’s making an income above $ 250000 per annum. He also said he would try to be flexible with specific rates in order to reach an agreement. Obama was re-elected last week in a bid for a new term as a majority house leader.
Rep. Eric Cantor wrote a letter to fellow republicans on November 7 2012 about long term reforms and issues of working with the White House. He wrote ” To state the obvious , there is a major divide between the president’s approach to these issues and ours. But the people of America expect and deserve that we act to bridge our differences and deliver results .“ It is expected that on January 1st there will be a $ 400 billion increase in income tax that will be effected automatically. This tax increase will negatively affect every tax payer. Raising taxes as planned won’t solve the deficit problem. Increase in taxes will majorly affect small businesses which count much in economic growth.
Congressional leaders received the letter written by Rep. Eric Cantor last week. The letter reiterates the coalition’s position that non-defence discretionary programs such as education , research and public health have already sustained cuts and should be held harmless from extra budget cuts. Increase in tax rate in 2013 will see almost ninety percent of Americans taxes rise. For most house- holds, the two big increases would be the expiration of the temporary cut in social security taxes and the expiration of the 2001/2003 tax reductions.
Households with low incomes would particularly be affected by the expiration of tax credits created by the stimulation in 2009. Households with high incomes would be hit extremely hard by the expiration of 2001/2003 tax cuts that apply at upper income levels and the beginning of the new health reform taxes. The scheduled changes would mostly affect the marginal tax rates that can influence behaviour. Average tax rates are expected to increase by five percent on labour income and seven percent on capital gains and more than twenty percent on dividends. The work of former Obama CEA chairman shows that increasing taxes by one percentage of Gross Domestic Product for deficit reduction purposes leads to a three percent reduction in Gross Domestic product.
In recent years labour economists have been dwelling a lot on the extensive margin. Extensive margins allow people to understand questions like why Europeans work fewer hours over their life than Americans. In summary, federal budget 2012 will lead to increase in taxes which will reduce the net income earned by workers and also increase inflation in America. Changes in tax rates do not matter most for typical workers but they have a major effect on younger workers and older ones.
