Fiscal cliff—Taxes
go up as federal government spending is cut across the board (sequestration)
in order to address the national deficit. It is feared that global aggregate
demand will plunge as this form of austerity
goes into effect, risky investments will falter, unemployment will increase,
causing another major global economic storm. Many nations face their own fiscal
cliff. Here in the US, the Bush era tax cuts will end, payroll tax holiday will
expire, the alternative minimum tax will bite, and the extension of
unemployment insurance will end unless some sort of agreement can be reached in
Congress and signed into law by President Obama. Some taxes are going to have to rise, or so
it is thought, in order to bring down the national debt and avoid hitting the debt ceiling
which can only be raised by an act of Congress. The Federal Reserve
continues to hold down interest rates in order to give some leeway
but Chairman Bernanke has stressed over and again that a plan needs to be
carefully constructed so as not to rock the boat but rather bring down the
deficit over time. There is a war over who should pay the extra in tax revenue
required. Warren Buffett has offered to pay more and has urged others in the
same boat to do so also. He has noted that he pays a lower percentage than his
secretary. Economist Alfred Marshall
noted that the less money one has to operate with, the more dear the money is.
Other economists insist that there should be no more tax breaks for taking
employment overseas. Many believe the gap in tax revenue and government
spending is one symptom of an employment problem stemming from low aggregate
demand and liquidity trap issues