Issue of Fiscal Cliff and the Economic Validity of Sequestering
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Fiscal Cliff and Sequester
The objective of this study is to examine the issue of the fiscal cliff and to answer as to whether sequestering has economic validity. This study will also answer the question of whether sequestering is an economic or political decision and if good politics and economics go hand-in-hand.
According to a report by CNBC News sequestration "is a fiscal policy procedure adopted by Congress to deal with the federal budget deficit. In simple terms, it's a way of forcing cutbacks in spending on government programs and then using that money to pay down the deficit." (Koba, 2013, p.1) The deficit is the difference in a year between what the government receives and what it spends. (Koba, 2013, paraphrased) As of January 2013, Congress was not able to reach an agreement on cuts to spending and the sequestration was delayed at that time until the first day of March 2013 "as part of the American Taxpayer Relief Act of 2013 the deal that prevented the full 'fiscal cliff' from happening." (Koba, 2013, p.1) The delay until March was provided to give lawmakers additional time to reach an agreement on which programs spending cuts would be applied to. The intent of the move was to "drive both sides to compromise." (Koba, 2013, p.1) The deficit reduction sequester was designed for the purpose of applying savings in the amount of $1.2 trillion through 2021 which means beginning 2013 and each following year that $85 billion would be