The make up of the fiscal cliff

Negotiations over the US Fiscal Cliff continue with hopes rising that a compromise will be averted. During the week, Fed Chairman Ben Bernanke said that the ‘fiscal cliff’ is a substantial risk to the outlook for America. However he also pointed out that if America’s fiscal issues could be sorted out then “the US economy might be in for a very good year” ahead. In negotiating with the Republicans to avoid the fiscal cliff, Obama has said that he will refuse to sign legislation that extends the current top rates on incomes over US$200,000 for individuals and US250,000 for couples. However he has asked for an extension of tax cuts to middle and low income earners.

From the chart below you can see that the main factor behind the fiscal cliff is the expiring of tax cuts.

Fiscal Cliff

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