Corporate World control mechanisms, so to speak, to check the country’s fiscal deficit. However, such a forced, across the board reduction in expenditure and increase in revenue by enhancing the taxes, thereby negatively impacting the common man, at a juncture where the country is still limping out of the 2008 financial crisis, was considered precarious not only to the US economy but also to the entire global economy, potentially capable of spiraling the country into a deeper recessionary mode. Hence, the Democrats and Republicans, through the US Senate, jointly agreed to temporarily avoid the fiscal cliff by enacting a law, named the American Taxpayer Relief Act of 2012, which would override the earlier Budget Control Act of 2011; this was actually accomplished in the early hours of January 1, 2013! US President Barack Obama exhibited jubilance after successfully striking the deal jointly with Democrats and Republicans in averting the fiscal cliff. But truly, is there really a reason to celebrate? What has this deal achieved? Is the American economy now free from all evils? What are its implications?
thousand programmes, including some of the most vital public expenditure schemes like defense spending and healthcare expenditure. Also, additional revenues, predominantly in the nature of incremental tax burden and additional taxes for covering the new healthcare law, all of which increasing the individual level outflow close to US$2,000 per annum, would have come into force. Both the reduction in government expenditure and the increase in revenue would have come into effect straightaway, reducing the country’s fiscal deficit by almost half, to around US$0.7 trillion (4.5 per cent of the GDP). The automatic activation of the Budget Control Act of 2 0 11 is
Understanding the “Fiscal Cliff” If the Senate hadn’t struck this deal, the Budget Control Act of 2011 would have automatically become effective. Government expenditure would have been instantaneously reduced, putting to an end more than a
www.advancedge.com
Barack Obama
Advanc’edge MBA February 2013
61