(Version in Español)
The United States and much of the world economy are still recovering from the devastating global recession that began in 2008. Sometimes crises happen that we cannot foresee or avoid.
But for the U.S. economy, serious risks could come at the end of this year from two potential self-inflicted wounds: the so-called “fiscal cliff” and the debt ceiling.
Let’s start with the fiscal cliff. In simple terms: if U.S. policymakers do nothing, a number of temporary tax cuts will expire and significant across-the-board spending reductions will kick in on January 1, 2013. The combined effect of these measures could result in a huge fiscal contraction, which would derail the economic recovery.
Why is this happening?
The payroll tax break, the Bush tax cuts (enacted in 2001 and 2003, and extended for two years at the end of 2010), as well as exemptions on the Alternative Minimum Tax are set to expire on January 1, 2013.
Filed under: Advanced Economies, Economic Crisis, Employment, Financial Crisis, Fiscal policy, growth, International Monetary Fund, Investment, Politics, Public debt, recession | Tagged: Bush tax cuts, Congress, debt ceiling, deficit, economic growth, economic recovery, federal government, financial markets, fiscal cliff, fiscal policy, Gian Maria Milesi-Ferretti, IMF, iMFdirect, iMFdirect blog, taxes, unemployment, United States | 5 Comments »