"Fiscal Cliff" Already Hampering U.S. Economy
October 29, 2012
The "fiscal cliff" is still two months off, but the scheduled blast of tax hikes and spending cuts is already reverberating through the U.S. economy, hampering growth and, according to a new study, wiping out nearly 1 million jobs this year alone, says the Washington Post.
The fiscal cliff refers to a set of policies that take effect this January in an effort to reduce the deficit.
- It includes about $100 billion in automatic cuts to the military and federal agencies.
- In addition, there is to be about $400 billion in tax hikes.
- This is likely to destroy 6 million jobs through 2014, raising the unemployment rate to 12 percent.
According to the nonpartisan Congressional Budget Office (CBO), these policies are likely to push the economy back into a recession, albeit only briefly. Some analysts argue that the economy is in such fragile condition that another recession would raise unemployment to double digits.
Particularly hard hit is the defense industry, which employs millions of Americans. The Pentagon is set to lose nearly $55 billion, which affects defense contractors all over the country. Some companies have already anticipated the cuts by freezing salaries, renegotiating health benefits and firing employees.
Democrats have blocked action on the fiscal cliff unless the Bush tax cuts are allowed to expire for people that make more than $250,000 a year. Republicans, on the other hand, want to keep current tax rates so that Congress can make needed reforms.
Source: Lori Montgomery, "'Fiscal Cliff' Already Hampering U.S. Economy, Report Says," Washington Post, October 25, 2012.
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