2.  Fiscal cliff; what it actually is?
 A background
 Going over the cliff (failure to reach the
deal)
 Fiscal cliff deal – Details
 Critical Appraisal and implications
 Conclusion
 References
 Acknowledgements
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3. The term describes the conundrum that
U.S. government would have faced at
the end of 2012, when the terms of
Budget Control Act of 2011 were
scheduled to go into effect.
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4. Series of contentious disagreements
between the Democrats and the
Republicans resulting in:
 Failure to reach deal on $1.2 trillion in
targeted budget savings leading to
spending cuts
 Downgrade in the US credit ratings (due to
debt ceiling fight of August 2011) by
Standard and Poor’s
 Meanwhile US debt soars to an
unsustainable path
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5. 3 Options for US lawmakers:
 They could have let the policies
scheduled for the beginning of 2013
go into effect. Plus Side: reduced
deficit
 They could have cancelled some or
all of the scheduled tax increases and
spending cuts. Flip Side: growing debt
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6.  To take the middle course
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7.  End of last year’s temporary payroll tax
cuts, hence 2% increase for workers
(from 4.2% to 6.2%)
 End of certain tax breaks for businesses
 Shifts in Alternative Minimum Tax
 Roll back of the Bush Tax Cuts from 2001-
2003
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8.  Beginning of taxes related to President
Obama’s health care law
Implications:
 Higher taxes and spending cuts leading
to reduction in deficit by an estimated
$560 billion
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9.  CBO (Congressional Budget Office)
estimated possible reduction in GDP and
increase in unemployment by 4% and 1%
respectively, in 2013
 NAM (National Association of
Manufacturers) predicted 13% reduction
in GDP and 11% increase in
unemployment by 2015
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10. 3 hours before the deadline on January
1, 2013, the US Senate agreed to a deal
to avert fiscal cliff and increase the
revenue estimated to $620 billion over 10
years.
What does the deal contain?
 Income Tax Rates:
 Increased from 35% to 39.6% for individuals
earning more than $400,000 and couples
earning more than $450, 000.
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11.  Estate Tax:
 Increased from 35% to 40%
 Alternative Minimum Tax
 Adjusted for inflation
 Unemployment Benefits
 Extended for a year
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12.  Obama tax credits:
 Child care, tuition and research and
development taxes renewal
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13.  The deal was cut on eleventh hour on
December 31st 2012, despite having
ample time of 507 days (since the
August, 2011, the debt ceiling
agreement)
 While the package provides some short-
term certainty, it leaves a range of big
issues unaddressed.
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14.  The deal addressed only the tax, and
postponed the discussion of spending
cuts for another two months.
 On long term basis, the deal did little to
address the country’s debt load of $16.4
trillion
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15.  The deal leaves Obama breaking his
promise of taxing 2% of wealthiest
Americans having income above
$200,000
 Even though a deal was made to
prevent major tax spike , in fact 77% of
Americans will pay higher taxes in 2013
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16.  In short, the fiscal cliff deal continues to
let Americans enjoy relatively higher
levels of government service at low
levels of taxation. The only way that is
possible is through heavy
borrowing, which future generations will
inherit.
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17.  http://www.cfr.org/economics/fiscal-cliff
 http://www.economist.com/news/leaders/21569
024-troubling-similarities-between-fiscal-
mismanagement-washington-and-mess
 http://www.forbes.com/sites/beltway/2013/01/0
3/the-bottom-line-what-the-fiscal-cliff-deal-really-
means-for-taxes-and-spending/
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18. Thank you
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