As the end of 2012 nears, many global economists are presently encouraged by the United States’ latest job growth trends. Not only was November’s employment report more positive than anticipated, but economic recovery has steadily occurred throughout the second half of the year.
Since July, nearly 789,000 jobs have been generated. The national unemployment rate has fallen from 8.3 to 7.7 percent. And, a majority of private sectors have been hiring, leading some economists to believe full-fledged recovery has begun.
But, will these trends continue in 2013? Or, will next quarter’s jobs figures match Q2 2012’s employment data, a quarter in which only 67,000 jobs were filled each month, on average?
Some economists believe the nation’s impending economic recovery will be heavily influenced by the often-mentioned “fiscal cliff,” a collection of tax increases and spending cuts that may transpire next year.
Presently, the so-called “Bush tax cuts” are set to expire on December 31, 2012. If they do, all Americans’ income tax rates will increase, including citizens who currently earn less than $250,000 per year – roughly 98 percent of the nation’s population.
In addition, the Social Security payroll tax cut will expire on December 31st, resulting in a considerable rate hike, from 4.2 to 6.2 percent, according to the Council on Foreign Relations.
If Congress allows such tax cuts to expire, national taxes will likely rise by $536 billion in 2013, an average of $3,500 per household, according to the Tax Policy Center. As a result, the national deficit will decline to $641 billion, four percent of GDP, according to the Congressional Budget Office (CBO).
Although deterioration in national deficit may improve the economy on a long-term basis, such a significant decline in a short period of time would likely lead to a negative total growth rate in 2013 – and a possible economic recession.
According to the U.S. National Association of Manufacturers, roughly six million jobs will be lost by 2014 if Congress ignores the fiscal cliff. The public sector will also be impacted by a decline in the budget deficit, as the Center for Regional Analysis at George Mason University has projected 227,000 federal jobs will be lost by December 2013.
Consequently, the CBO has estimated the national unemployment rate could rise to at least nine percent next year, the highest rate recorded since October 2011.
Of course, this can all be avoided. If the fiscal cliff does not transpire – and middle-class tax cuts are extended – 1.6 million jobs will be created, while GDP will rise by 1.3 percent, according to the CBO.
With less than three weeks left before tax cuts expire, the nation’s economic future lies in the hands of our Congressional leaders. But, how will they respond?