Coming to terms with the American Taxpayer Relief Act of
2012 to tackle the fiscal cliff, the U.S. are in a dilemma over the way forward.
After much reluctance, on March 1, President Obama finally approved the Government
spending cuts referred to as “sequester.” According to him, “These cuts are not
smart. They will hurt our economy and cost us jobs. And Congress can turn them
off at any time - as soon as both sides are willing to compromise.” However, the
“other side” is not willing to even discuss the alternatives.
Proposed alternatives include tax hikes and withdrawal of
tax-breaks for wealthy Americans to increase Government revenue. As it stands
now, the Government agencies are mandated to trim $85 billion in expenditure by
October 1, 2013 and a total of $1.5 trillion over the next 10 years. While, this
move is not likely to completely tame the monstrous $16 trillion Government debt,
it is sure to impact the economy. Reeling under the pressures of the opposition,
Obama has categorically termed the spending cuts as “dumb.” An estimated 750,000
jobs will be lost at a time when the nation needs to tackle unemployment. Special
education programs, law enforcement agencies, Department of Agriculture, loan
guarantees to SMEs, and FEMA will be among the most-affected. Sequestration
will impact defense partially, while Medicaid, Social Security, Pell Grants and
benefits for veterans will be exempt.
Most experts fear a slow and certain damage as time
progresses. However, some disagree. Sequestration for the current year comes at
about 2.4% of the last year’s expenditure, which according to them is not
likely to have far-reaching effect on the GDP. The growth may be retarded, but
recession is a distant possibility. However, there seems to be a consensus about
the inappropriateness of the latest move due to the political stalemate and the
certainty of a net negative result.
Eurion
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Labels: Global Economy, News and Analysis, World