As we seem to be hearing relentlessly every day, the Fiscal Cliff is upon us and we may go over it in a few days if there are no agreements among our representatives in Washington. The fiscal cliff is about taxes increasing, or not, and spending decreasing,or not.
The Congressional Budget Office projects that if these two things occur as scheduled on January 1, 2013, the economy will shrink by about .5% and unemployment rates will increase to 9.1%. This is not good.
Deficits are running about $1 trillion annually right now. Even if no agreements are reached and we go over the Fiscal Cliff, the deficit for 2013 is expected to be about $600 billion less than that in 2012. This is due to the fact that many across-the-board spending freezes on government programs are already in place.
Doing only one or the other (let taxes increase or let spending reductions kick in) is not a good answer either. All sides agree that spending needs to be reduced but not necessarily where those cuts should take place. Reducing spending is one way to reduce deficits but not the only way. Raising taxes is another way to bring more revenue into government coffers which can also reduce the deficit.
Both spending cuts and raising taxes pull money out of the economy at a time when it is showing signs of revival. The more we do of either or both, the greater the potential adverse impact on the economy at a time when it is showing some recovery. So how much deficit reduction is really good for us right now?Some flexibility from our representatives seems in order right now.
