U.S. has other possible economic threats looming!!!!
Even if Washington somehow finds a way to avoid the fiscal cliff — the automatic tax hikes and federal spending cuts that threaten to plunge the nation back into a recession — the economy could suffer a stiff blow next year from other looming changes in public policy.
A payroll tax cut benefiting 160 million workers is scheduled to expire at the end of the year, as are unemployment benefits for millions of people.
Also on tap are new taxes on the wealthy and cuts in tens of billions of dollars in domestic and defense spending that will occur regardless of the fiscal cliff.
What does this mean to the economy and the recovery?
With the government putting less money into the economy and taking more out of people’s wallets, many economists estimate that these changes could reduce growth by at least one percentage point and leave at least 1 million more people jobless.
What exactly is going to happen?
Of these, the biggest impact would come from the expiration of the temporary payroll tax cut, enacted in December 2010. Since then, the payroll tax that funds Social Security has been 4.2 percent, down from 6.2 percent, giving the average family an extra $1,000 to spend.
The disappearance of unemployment benefits would also hamper economic activity, especially because recipients usually spend most of the cash on food and other goods rather than saving the money.
Meanwhile, upper-income earners would see a slight increase in the taxes they pay under President Obama’s health-care law.
Finally, under an agreement forged last summer, the government is required to trim about $60 billion from domestic and defense spending next year.
Together, these changes could do at least as much to slow the economy as any other government action in the past half-century, according to Moody’s Analytics.
What are the experts saying about 2013 and beyond if these things happen?
The weakness of the economy means that 2013 is not a good year for any tax increase or spending cut,” said Joseph E. Gagnon, senior fellow at the Peterson Institute for International Economics and a former top official at the Federal Reserve. “Tax increases and spending increases hurt the economy. So do them when the economy is healthy, not when it’s weak.”
Neither the White House nor leaders in Congress are calling for an extension of payroll tax cuts this year. Treasury Secretary
Timothy F. Geithner said earlier in the year that they should not be renewed.
A White House official said the president wants the extension of unemployment insurance at the end of the year and would take a look at the payroll tax cut as part of a host of issues to be discussed after Nov. 6.