There is a new kind of economic disorder in the United States taking roots in their fiscal policy. It has emerged in the system foreshadowing an economic apocalypse of the US economy, and is known as the Fiscal Cliff.

The implication of the Fiscal Cliff, if left unchecked, will be devastating in nature and highly toxic for the US and global economic stability. The term ‘Fiscal Cliff’ refers to a package of tax increases and spending cuts that may take place due to the expiration of certain laws dealing with tax code and state spending.

In other words, it refers to a stage where economic fortunes may slip down under a deep no-growth trajectory because of laws which will get activated automatically in January.

According to the BBC, on 31 December, a raft of temporary tax cuts is due to expire just as huge automatic spending cuts are introduced. Individuals and companies will be hit simultaneously with tax rises and reductions in government contracts, benefits and support.

BBC further says that some $607 billion of cuts and tax rises are planned, including reductions in the defense budget, the end of an employee tax holiday, changes to Medicare allowances and higher personal taxes.

The ideology of both Republicans and Democrats is asymmetrical when it comes to resolution of the fiscal mess: President Obama proposes a tax increase for the households that earn more than $250,000 per year, but Republicans tend to repeatedly torpedo that proposal. Republicans seem to favor a “no tax rate increase policy,” with some adjustments and corrections in spending programs.

According to Boston.com, Republican Senator Lindsay Graham of South Carolina said “No republican will vote for higher tax rates… We will generate revenue from eliminating deductions and loopholes, but we will insist our Democratic friends reform entitlements – something we’ve never done, and that’s where the big money is at.”

According to CBS News, about $1.2 trillion in federal spending cuts are scheduled to take place next year, and some state-run health care programs for the elderly, such as Medicare, will be affected by a 2 percent reduction in payments.

There come questions about how to jump-start job creation and fuel economic growth while still slashing away at federal deficits. Tax hikes to annihilate deficits may plunder the economy itself; tax increase arrests spending and investment but can positively correlate with a deficit reduction scheme.

Ironically, it all depends on how much importance we attach to ballooning deficits and interest service and how we see growth. If spending is slashed through different programs, like Medicare, it will adversely affect savings among the elderly as it will wipe-out state help, leaving them to rely on whatever means they have.

On the other hand, even if Bush-Era Tax Cuts were to be extended for the next two years, will they be helpful in opening the door for faster economic growth? For the last few years Bush-era tax cuts were in place in the economy along with the low interest rate policy adopted by the US Federal Reserve, but the economy is still coughing. What is needed is to increase taxes if deficit reduction is primary for the economy.

The argument is that it might drag the economy back into a recession, but again a question arises. Are these tax-cuts helpful in getting the economy back on a stable surface?

There is no magic wand that can drain out the federal deficits and growth rate with the same pattern of spending and bush-era tax cuts in place.

Ultimately what can be done to avert the crisis, to shield the US economy falling over the cliff? The resolution is in striking a deal that limits spending (to some extent) and increasing tax rates on households earning more than $398,350. Spending on defense should be lowered dramatically; further laws with sunset provisions must be avoided.

The article Fiscal Cliff: Serpent in US Economy appeared first on The Toonari Post - News, Powered by the People!.

The Center for Tax and Budget Accountability (CTBA) and the Social IMPACT Research Center released a new analysis that highlights how large cuts to human services, which provide supports for some of the most vulnerable people in the state, will send shockwaves through the state’s economy.

The new research, entitled Ramifications of State Budget Cuts to Human Services: Increases Job Loss, Decreases economic Activity, Harms Vulnerable Populations, shows these cuts could result in nearly 4,000 lost jobs and a $458.5 million loss to Illinois’s economy.

While budget discussions are just beginning, the three year budget projection issued by the Governor’s Office of Management and Budget as part of the new Budgeting for Results process indicates that the human services budget area will receive a significant cut of $350 million dollars from Financial Year2012 to Financial Year 2013.

Faced with cuts of this magnitude, human services providers will reduce hours, lay off staff, close facilities, or do all of these things. Not only does this impact thousands of Illinoisans who rely on these programs, but the cuts will have a direct economic consequence on the state.

Since most human services are delivered by private, nonprofit businesses, the vast majority of the economic effects will land on the private sector. When organizations providing human services must cut programs and reduce services, these actions ripple through the economy causing job loss in communities and sectors all across Illinois.

More broadly, cuts to human services will translate directly into decreased economic activity statewide, and the report shows that could result in a loss of $458.5 million to the economy. The actual negative economic impact of a cut to the human services budget exceeds the actual size of the cut since spending on human services generates $1.31 of economic activity for every $1 spent. In other words, state funding to human services functions as an economic engine and removing it from the economic chain has serious consequences:

“By cutting human services funding further in the next budget Illinois is lengthening the time it will take to fully recover from the Great Recession,” said Yerik Kaslow, Director of Education and Social Policy Analysis at the Center for Tax and Budget Accountability and co-author of the report.

“Since human services are often the most cost-effective approaches to treating and solving social problems, with these cuts we are allowing social problems to become more entrenched and more difficult to address, which sets the stage for more costs to all Illinois taxpayers.”

This is not simply a point-in-time issue—cuts to human services accumulate: the $1.64 billion dollar cumulative underfunding of human services since 2002 likely led to the loss of over 18,000 private sector jobs in Illinois over that same period. As of October 2011, the State had a backlog of bills to human service providers totaling nearly $459 million, which has the effect of withholding over $600 million from the Illinois economy.

Illinois is in the midst of recovering from the worst recession in two generations. Job growth and increased economic activity are of paramount concern to voters and lawmakers alike. Ramifications of State Budget Cuts to Human Services provides evidence that public spending on human services serves as an economic stimulus for jobs and private spending in the broader Illinois economy.

Adequate public spending also has the longer-range benefits of avoiding future social problems and associated costs. In light of this, cuts to human services are short-sighted and detrimental to Illinois’s economy.

The article Cutting Human Services Would Stifle Recession Recovery appeared first on The Toonari Post - News, Powered by the People!.