A creaking siren on an unprecedented fiscal crisis has rung
in the United States of America just the next day of the re-election of Barak
Obama for four more years to US presidency. Three days after his victory
speech, President Barak Obama rendered his first public comments giving birth
to the pending debate over looming fiscal cliff. The debate is divided as
usual. Obama reiterated his stance to not budge on Republicans’ demand of
keeping taxes alike for all and sacrificing social expenditure. He is still of
the view that people making more than $250,000 a year must pay more taxes which
he says is acceptable to the vast populace of America as is validated by him
achieving four more years. This is likely to start a new phase of political
wrangling over sensitive fiscal issues, that will keep the whole financial
world on cliff of uncertainty for weeks to come.
The beginning of the New Year sees
the deadly combination of automatic tax increases and spending cuts that
economists predict could push the US back into recession. In order to prevent
its occurrence, Republicans want to cut spending and avoid raising taxes, while
Democrats are looking for a combination of moderate cut in spending cuts and
while steep increase in taxes.
Americans have long been pampered
with low tax rates. Apart from this, colossal public spending on education,
health care, infrastructure and technology has led to the current crisis of higher
fiscal deficit in the US economy. America has to resort to tax increases and
spending cuts at the sunset of this year to fix this deficit crisis. US
Congressional Budget Office (CBO) estimates that this combination of lower
spending and higher taxes is expected to conglomerate about $600 billion from
the economy but at the same time would cut gross domestic product (GDP)
by four percentage points in 2013, sending the economy into a
recession (i.e., negative growth). It also predicts that unemployment would
rise by almost a full percentage point reaching to 9.1 percent range, with a
loss of about two million jobs. Due to the expected negative impact of fiscal
cliff, the American lawmakers are in a tizzy whether or not raise the taxes and
reduce spending.
Obama is ready to compromise to some
extent but vehemently refuses to agree on Republicans’ demand of
annulling tax hikes for affluent. Exit polls of voters released Tuesday showed
that 47% of Americans supported Obama's proposal to raise tax rates on income
above $250,000 for couples. In addition, 13% said everyone should pay more in
taxes, while 35% were against any tax increases. On the other hand Republicans
who are in majority in the House of representatives, the lower house,
avert to go along with the President on the ground that it would cripple the
growth of small businesses those are still struggling hard to overcome the repercussions
of earlier recession. Republican House Speaker John Boehner said he remains
unwilling to raise tax rates on upper-income earners. But he left open the
possibility of balancing spending cuts with new revenue that could be achieved
by revising the tax code to lower rates but also eliminate some tax breaks.
Hence it is a tough call for Obama to reach an agreement in the Congress.
Obama and speaker Boehner in their
respective speech seemed to put the burden of averting fiscal cliff on each
other while the whole world expected prudent answers from them. The vicious altercation between democrats and republicans over
the issue of debt-ceiling in 2011 is well known. It led to an unprecedented
downgrade of the US credit rating BY S&P. Hence, if the deadlock between
both the parties still persists and no legislation passes before the year-end
the US economy will be badly affected resulting into an economic disaster
worldwide. Is the world going to view another round of brinkmanship in US
politics ? … Clock is ticking for America.
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