The Fisical Cliff

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1 2011 SapientNitro | a division of Sapient Corporation


The Fiscal CliffNov 17th 2012

Presented by:Arvind Singh & Taposh Dutta Roy


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What is Fiscal Cliff?

Fiscal cliff is the popularshorthand term used to describe the

conundrum that the U.S.government will face at the end of2012, when the terms of the BudgetControl Act of 2011 & Bush Tax cutsexpiration are scheduled to go intoeffect.

Source: About.com

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What will happen on Jan 2013?

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The following - Bush tax cuts expire Alternative Minimum Tax expire

Medicare doctors pay goes down Federal spending clashed

$1 Trillion over next 9 years

1 Million jobs over 2 yearsSource: Congressional Budget office, Bipartisan policy center


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What is Bush tax cuts?

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Bush tax cuts refers to changes to the United States tax

code passed originally during the presidency of GeorgeW. Bush, through:

Economic Growth and Tax Relief Reconciliation Actof 2001 (EGTRRA)

Jobs and Growth Tax Relief Reconciliation Act of2003 (JGTRRA)

These tax cuts were supposed to expire in 2010. Howevergiven the situation of economy, President Obamaextended this till end of 2012. Before the tax cuts, the

highest marginal income tax rate was 39.6 percent. Afterthe cuts, the highest rate was 35 percent.

Source: Congressional Budget office (http://www.fas.org/sgp/crs/misc/R42485.pdf), &http://en.wikipedia.org/wiki/Bush_tax_cuts
http://www.fas.org/sgp/crs/misc/R42485.pdfhttp://www.fas.org/sgp/crs/misc/R42485.pdf


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What are AMT, Payroll tax and others ?

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The Alternative Minimum Tax (AMT) was designed to

ensure that higher-income (above 75K) taxpayers whoowed little or no taxes under the regular income taxbecause they could claim tax preferences would still paysome tax . This prevents an estimated 26 millionadditional taxpayers from owing the AMT.

The payroll tax cut, which reduced an employees share ofSocial Security taxes by two percentage points.

A variety of previously extended temporary taxprovisions, commonly referred to as tax extenders,

which affect individuals, businesses, charitable giving,energy, community development, and disaster relief.



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The Impact?

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The Congressional Budget Office reported anincreased risk ofrecession during 2013 if thedeficit is reduced suddenly, while indicating thatlower deficits and debt over time improve long-term economic growth prospects.

The deficit for 2013 is projected to be reduced byroughly half, with the cumulative deficit over the

next ten years to be lowered by as much as $7.1trillion or about 70%.



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The first use of the term in its current context was in a reportdated October 21, 2011, titled "The Super Committee and the

Fiscal Cliff" written by Goldman Sachs economist Alec Phillips.

Some analysts have argued that "fiscal slope" or "fiscal hill" wouldbe more appropriate terminology because while the cumulative

economic effect over all of 2013 would be substantial, it would notbe felt immediately but rather gradually as the weeks and months

went by.

Trivia?


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Thank you

The Fisical Cliff

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