Fiscal Cliff Essay Example

Fiscal cliff is expected to take place next year after some laws that have existed for some time have expired. It is expected that the deficit financing by federal government will reduce by half. This is important in reducing the total the government debt. This will mean that the government is expected to reduce expenditure. The tax cuts that have existed are expected to expire hence people and institutions are expected to pay more taxes. These events will have negative effects on the economy to an extent. Economists have predicted that if these events happen, there are chances that economic depression will take place.
The current economic conditions are that the unemployment rates are very low. The government debt has also increased over time. This has been facilitated by deficit financing of the budget. These observations show that if the events expected in 2013 happen, economic situations in the United States will worsen.
The government objectives are to increase the employment opportunities to the people. The government aims to reduce the debt it currently owes to the public. The government also intends to ensure that the services it was previously providing to the public are still in place. For example, eliminating unemployment benefits can adversely affect the lives of some people. Therefore, such benefits are expected to remain. The government is facing difficult situations because achieving one objective here means that the other objective will not be achieved. For example, solving the problem of unemployment means that the government must spend more hence increasing the government debt.
One of the ways of dealing with the situation is by extending the tax cuts that have existed. This means that the tax cuts remain in place for some people. This will ensure that the purchasing power of these people is not affected and some businesses will continue with their operations. Existence of these businesses will create employment to the people. Demand will encourage investment in the economy hence creation of employment to the people.
Some of the tax cuts should however end. Some of these cuts do not benefit the economy in any way. Some people are wealthy and still benefit from the tax cuts. If some of these tax cuts are eliminated such that the government is able to collect some funds from the wealthy people in the society, it will be possible to reduce deficit budget financing. The taxes collected from such areas can be used to finance the budget instead of borrowing more money from the public.
Unnecessary expenditures can be avoided to ensure that the economy is not affected by the depression. Expenditure in wars is wasteful and does not contribute positively to economic growth. Reducing such, expenditure will help reduce the debt that the government currently owes to the public.
When these actions are taken, the government debt will reduce by a small proportion. The decrease is however less than it would be if there was no intervention. Presence of deficit financing will ensure that the interest rates in the economy are still low hence; firms can borrow funds and invest. This will create more employment opportunities. Tax cuts will encourage firms to invest, employ more people, and hence increase total output in the economy. As a result, the gross domestic product of the economy will increase.
Even though the economy is at difficult situation, these measures if adopted by the government will have positive effects in the economy. The other available options seem not to be very attractive to the economy currently.