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Monday 16.07.2018 | Name days: Hermīne, Estere

Obama to cut US budget by $600bn

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A looming clash over US budget measures is now set to become the focus of investor attention following the re-election of Barack Obama.

President Obama needs to secure a deal with the US Congress to avoid the so-called “fiscal cliff”.

This refers to the $600bn (£375bn) of tax rises and spending cuts that are due to hit the US economy in January, BBC reported.

They include everything from the end of a tax relief scheme for middle earners, to a reduction in how much doctors are paid by Medicare, the government-administered healthcare programme.

Some of the tax rises apply to the timetabled end of relief schemes started during the administration of George W Bush.

The fear is that if the fiscal cliff is not avoided, it may derail a fragile US economic recovery, and in a worst case scenario even push the economy back into recession.

However, President Obama, a Democrat, faces a difficult challenge in securing a deal with Congress because the opposition Republican party has maintained a majority in the House of Representatives, the lower house of Congress.

The Republicans want to see a general fall in federal spending to help reduce the US budget deficit, and the amount of money that the administration has to borrow to cover the shortfall.

The Democrats also want to reduce the deficit, but favour doing so more through higher taxes, primarily on higher earners.

Business commentator Daniel Costello, managing director of financial advisory firm Titan Advisers, said it would be “extremely painful [for Americans] if these cuts were allowed to go through”.

Besides, many experts point at the high unemployment which is now around 8%. There are concerns amongst some analysts that the jobs market may not improve anytime soon and that the recovery in the US will remain weak.

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