Additional Taxes in 2013 Spell Trouble

Last updated on October 29, 2012

An increase in income tax, obamacare taxes, medicare taxes and social security taxes starting from Jan 1, 2013 can push the country off the fiscal cliff. Along with additional taxes, $120 billion federal government spending cuts are mandated for 2013. Some fear that this may cruise the country into recession.

Additional taxes will mean less spending. For example, if wealthy taxpayers have to pay additional taxes, they will have less money to spend. They may spend less on luxury items, decide not to hire a gardener, have a vacation or buy a car. That will directly affect the employment opportunity of a gardener and affect the selling capacity of those selling luxury items. Even though the rich will still have enough money to lead a luxurious life, their cutting down on spending will affect many, most of them not rich.

As every service provider is also a receiver of services, even if a certain section of the economy is hit, it affects everybody. If there is a reduction in investment, it will affect those who are providing services.

It is estimated that due to increase in taxes, as many as 3 million Americans may lose their jobs. It is also estimated that the country will have 2.9% less income to spend. Economists worry that business, expecting the country to go over the fiscal cliff to enter a recession, have begun to limit or stop investing. They are saving for the recession where the value of cash is topmost.

Economists believe that businesses will begin to spend if the fiscal cliff is eliminated. Many believe that wrong fiscal policy lead to the fiscal cliff. Along with finding the reason for the fiscal cliff, time is ripe to find ways to help the economy recover and not fall into recession.