CLIFFHANGER - Jamaica could be hard hit if the US falls off the fiscal cliff

Published: Sunday | December 30, 2012 Comments 0

Partly by fate, partly by design, some scary fiscal forces come together at the start of 2013 unless the United States Congress and President Barack Obama act to stop them.

If the US falls off the fiscal cliff Jamaica would be hard hit with a decline in visitors from America, reduced remittances, reduced demand for Jamaican goods and services in the US and other economic woes that could deepen the recession the country now faces.

But not many Jamaicans, it seems, are keeping their eyes on the machinations in the US as last-ditch efforts continue to avoid what could be catastrophic for Jamaica and the region.

Last week, Americans woke up to the reality that falling off the cliff is a real danger and many Jamaicans are slowly showing interest in that issue.

Here is a summary of what is the fiscal cliff and what Americans and the rest of the world would face if they fall off.

Some $536 billion in tax increases, touching nearly all Americans, because various federal tax cuts and breaks expire at year end.

About $110 billion in spending cuts divided equally between the military and most other federal departments. That's about eight per cent of their annual budgets.

Hitting the US economy with that double whammy of tax increases and spending cuts is what's called going over the "fiscal cliff." If allowed to unfold over 2013, it would lead to recession, a big jump in unemployment and financial market turmoil, economists predict.

WHAT IF THEY MISS THE DEADLINE?

If New Year's Day arrives without a deal, the US shouldn't plunge on to the shoals of recession immediately. There still might be time to engineer a soft landing.

So long as lawmakers and the President appear to be working toward agreement, the tax hikes and spending cuts could mostly be held at bay for a few weeks. Then they could be repealed retroactively once a deal was reached.

The big wild card is the stock market and the nation's financial confidence: Would traders start to panic if Washington appeared unable to reach accord? Would worried consumers and businesses sharply reduce their spending? In what could be a preview, stock prices around the world dropped last Friday after House Republican leaders' plan for addressing the fiscal cliff collapsed.

WHAT IF THEY NEVER AGREE?

If negotiations between Obama and Congress collapse completely, 2013 looks like a rocky year.

Taxes would jump $2,400 on average for families with incomes of $50,000 to $75,000, according to a study by the non-partisan Tax Policy Centre. Because consumers would get less of their paycheques to spend, businesses and jobs would suffer.

At the same time, Americans would feel cuts in government services; some federal workers would be furloughed or laid off, and companies would lose government business. The nation would lose up to 3.4 million jobs, the Congressional Budget Office predicts.

THE TAXES

Much of the disagreement surrounds the George W. Bush-era income tax cuts, and whether those rates should be allowed to rise for the nation's wealthiest taxpayers. Both political parties say they want to protect the middle class from tax increases.

Several tax breaks begun in 2009 to stimulate the economy by aiding low- and middle-income families are also set to expire January 1.

The alternative minimum tax would expand to catch 28 million more taxpayers, with an average increase of $3,700 a year. Taxes on investments would rise, too.

More deaths would be covered by the federal estate tax, and the rate climbs from 35 per cent to 55 per cent. Some corporate tax breaks would end.

THE SPENDING

If the nation goes over the fiscal cliff, budget cuts of eight per cent or nine per cent would hit most of the federal government, touching all sorts of things from agriculture to law enforcement and the military to weather forecasting. A few areas, such as Social Security benefits, Veterans Affairs and some programmes for the poor, are exempt.

THERE'S MORE AT STAKE

All sorts of stuff could get wrapped up in the fiscal cliff deal-making. A sampling:

Some two million jobless Americans may lose their federal unemployment aid. Obama wants to continue the benefits extension as part of the deal; Republicans say it's too costly.

Social security recipients might see their checks grow more slowly. As part of a possible deal, Obama and Republican leaders want to change the way cost-of-living adjustments are calculated, which would mean smaller checks over the years for retirees who get social security, veterans' benefits or government pensions.

The price of milk could double. If Congress doesn't provide a fix for expiring dairy price supports before January 1, milk-drinking families could feel the pinch. One scenario is to attach a farm bill extension to the fiscal cliff legislation - if a compromise is reached in time.

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