The deal made regarding the fiscal cliff did little to decrease the annual deficit, almost $1.1 trillion last year. A large portion of the current deficit is simply due to the normal result of a weak economy. If the economy were increasing at an average rate of 3.25%, which is the historical average, the US could afford to run a deficit of half a trillion dollars, give or take. The current deficit still needs to be reduced by approximately $300 billion a year, ultimately this means that further spending cuts and tax hikes will occur, dragging down the economy (Sivy, 2013).
Data shows estimates for slightly slower growth this year. Estimating a 1.8% decrease, which is down from 2.2% in 2012. Optimistic economists foresee little improvement in growth this year, followed by 3% or more in 2014. This would get the economy back to its long-term average growth rate and would remain far short of the powerful rebound that generally follows a recession (Sivy, 2013).
There are many factors involved in influencing the US economy and American families. Below is a brief description of a few factors involved.
Unemployment: Slowly but steadily over the past three years, unemployment rates have been decreasing. The most recent numbers reported were 155,000 jobs were added to the US economy in December 2012. The unemployment rate of 7.8% was unchanged from the percentage reported in November 2012. It has been estimated that creation of 300,000 or more new jobs per month would be needed to bring unemployment down with the speed desired (Sivy, 2013).
Taxes: The fiscal cliff debate centered on tax hikes for the rich. The expiration of the payroll tax cut means most middle-class families are now paying $600-$1200 more per year. Additional revenues will likely need to be raised as part of any bargain to cut spending and to reduce the deficit due to the debt ceiling and the sequester approaching. It is unlikely that tax increases in the near future will be aimed at the rich, but typical families will likely be targeted in some degree (Sivy, 2013).
