For the past few months all we have heard is US economy is going towards fiscal cliff if the Congress and the White House do not come together to resolve the tax issues. There is no fiscal cliff should the Congress and the White House fail to reach an agreement on the tax cuts or tax increase depending on whose point of view one is arguing on. The worst is that the taxes will go up for all. The tax increase is not that sudden and massive to really make a dent on peoples net pay check. Neither, will the businesses stop hiring people because their taxes went up, nor do consumers stop buying goods and services because their taxes went up.
Granted in the long it may have some impact on people’s behavior with regards to expenditure, but it will not bring down the economy. On other hand it will increase revenue for the Federal government which could mean more expenditure on social programs and creating more jobs. We must remember one’s expenditure is another’s income. When household buys goods and services which and expense to them, but it will be revenue for the companies that sell those goods and services. The same argument applies to the government, taxes which are considered expenditure for the households, are revenue for the federal government. So as one sees it is not wasted money, unless the government tries to spend it on useless project such as wars.
Fed Chairman, Ben Bernanke, casually used the term fiscal cliff during one of his hearing at the Congress and it caught on and the politicians who are always looking for dramatic words started using it and of course the media who lack creativity followed on.
It is disappointing to see that the media have forgotten their role which is to inform the people with facts and truth and rather than analyzing the so call fiscal cliff, just blindly keep using it without really understanding what it means and how it could impact the economy.
Another issue that is talked about, but not too much is sequestering, which is used to describe the automatic cuts to various federal programs should the negotiation on tax cuts/increase fail. One of the major cuts will be to the defense budget which frankly will be great should that happen as the United States is the only country on the planet to spend so much of her budget on defense. In fact the United States spend more on defense than the next seven largest countries combined which include China, Russia, and India.
Should taxes go up? It all depends. The tax rates for the wealthy people should go up as not only they can afford to pay more, but also they will not feel the tax increase. Further, it is only fair for this class of people to pay a fair share, after all they would not have reached to where they are now without the help of the masses who bought their goods and services.
The taxes for the middle income families should also rise slightly. Some may argue that will be cause undue hardship on these class of people, but the counter argue will be no so, as stated earlier, the higher taxes provide higher revenue for the Federal government who could spend more on social program to benefit the lower and middle income class, so the middle income class will receive benefits for their increased taxes.
The taxes for all types of business should only go down if they create new jobs, this not to be confused with filling a vacant position, but instead creating a totally new position. By doing so, the business will have incentive to create job in order to take advantage of the tax benefit. Federal government will gain the tax loss back through the payroll taxes paid by the new hires. It will be a win-win situation.
How great would it be if the responsible media would only take time to explain the social and economic issues to the masses, rather than hype and exaggerations?