Implementation and Analysis of The Fiscal Cliff contained in the U.S. Budget Control Act of 2011 - Essay Example

Bush had enacted a string of tax cuts during the period of his administration in the United States. The question that is of concern at present is that which of these tax cuts are to extended and or what period. The provisions of the tax cuts reinforced in the years of 2001 and 2003 had been extended until the end of the year 2012 (Levit, 2011, p. 12). These tax cuts considerably reduced the rates of personal income taxes and eliminated the estate tax. It also had created low rates of tax on dividends.

Critics of this tax system, mostly the Democrats, held responsible such reduction in taxes for fuelling the federal budget deficit. It has been found that the increase in “the top two marginal tax rates” (Huang & Marr, 2012) would not adversely affect many small businesses. If the Bush tax cuts are allowed to be extended then it would keep many affluent individuals’ income out of the taxable income zone. For the small businesses to thrive, they require the boost of higher sales. It is not likely that small businesses would expand following a tax cut, thereby creating more employment opportunity by hiring more workers, if they do not find a good market for selling their products.

Tax cuts on high income brackets are not effective enough to boost economic growth in the long run. Therefore the argument is strong for the expiry of the Bush Tax cuts. From the extension of these tax cuts, it is estimated that almost $1trillion would get added to the deficits over the ten years from 2013 to 2022. Spending Component of the Act – Across-the-Board spending cuts in the Federal government budget “The Budget Control Act (BCA) of 2011” (Saturno & Heniff, 2009, p. 17-5) presents the methods in which the across-the-board cuts in spending would be implemented.

The across the board cuts on spending would be triggered if the Joint Committee fails to reach the agreement on deficit reduction. The report has two parts. The first part of the report outlines the method to be followed for the FY2013 and the second part caters to the process to be followed in the period of eight years between FY2014 to FY2021. The procedure planned for the span of the next eight years is quite different from that of the year fiscal 2013. The deficit reduction proposal released by President Obama in April 2011 includes the two components; “spending cuts and tax reform” (Levit, n.d., p. 4). This proposal includes a “Debt Failsafe” technique.

This incorporates a debt-to-GDP ratio which is to be stabilized by the FY2014 and decline after that year. However, if it is not accomplished, “across the board spending cuts” (Levit, n.d., p. 4) would automatically be triggered and tax expenditures would also be reduced simultaneously. There would be an approximate cut of nine percent annually in non-defense programs as well as another nine percent in defense programs (Kogan, 2011). For FY2013, the funding for each of the discretionary programs would be reduced proportionally.

In this year the president can allow the military personnel funding to be exempted from the sequestration. Depending on this the cuts in spending on other defense programs would increase. In the fiscal years from 2014 to 2021, in each year there would be “reductions in the statutory cap on total funding for non-defense discretionary programs” (Kogan, 2011). “Sequestration” – what does it mean? Sequestration is a process in which certain policy goals of the budget are met or enforced through