Wednesday, October 17, 2012

Fiscal cliff may drag U.S. into recession

Uncertainty over economic conditions may drag small businesses across America into recession.

This fear was reflected in the October 2012 report of the National Federation of Independent Business, which showed that 38 percent of the respondents viewed the problem as critical.  The cost of health insurance, another factor that caused worry among the respondents, topped the same survey at 52 percent.

Tied for the number three spot are issues that impinge on the cost of fuel and uncertainty over government actions, which garnered 35 percent each. Other worries of small businesses are unreasonable government regulations, 34 percent; imposition of federal taxes on business income, 30 percent; and  tax complicity, 29 percent. While other factors include frequent changes to federal rules, property taxes, and state taxes on business income, with 24 percent each.

"At the beginning of next year, federal tax increases and spending cuts equivalent to 15 percent of the GDP will automatically come into force," the same report said.

Unless the Democrats and the Republicans in Congress will meet halfway to agree on a common ground that will avoid it, America is bound to inch toward a fiscal cliff, the report warned.  However, what is happening right is that each side has shown little sign of coming to terms on certain issues that will make them settle for a compromise, the report said.

If this problem runs out of control, there is a strong possibility that the "fiscal cliff could knock enough points of the growth rate to drive America into a recession, the report quoted  the Congressional Budget Office as saying.

Notably, one of the reasons why this cliff is hanging over the horizon is that several temporary measures are expiring all at the same time at the end of this year. For example, George W. Bush's tax cuts, which were extended for two years, and Obama's temporary jobs measures that include payroll tax holiday and extended employment benefits, the report said.

This is not to mention the Alternative Minimum Tax is expected to hit 30 million middle-class Americans.  Compounding the problem is that Medicare is set to slash payments to doctors by 30 percent.

To sum it up, America will plunge into a fiscal squeeze amounting to $600 billion in a single calendar year, and $6.1 trillion over a ten-year period, the report added.

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