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92-638: The Act centers on a partial resolution to the US fiscal cliff by addressing the expiration of certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (known together as the " Bush tax cuts "), which had been temporarily extended by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 . The Act also addressed

184-482: A broad measure of economic progress . It is often considered to be the world's most powerful statistical indicator of national development and progress. However, critics of the growth imperative often argue that GDP measures were never intended to measure progress, and leave out key other externalities , such as resource extraction , environmental impact and unpaid domestic work . Alternative economic indicators such as doughnut economics use other measures, such as

276-502: A burn rate , as faith ebbed in the ability of Congress to resolve the issue. Even as the Pentagon has had to curb needed investments, the impact from government by crisis cost the federal government billions of dollars in inefficiencies and the resulting economic uncertainties may have cost the overall economy millions of jobs. Michael O'Hanlon blamed the negative growth at the end of 2012 on Pentagon cuts in expectation of sequestration. And

368-506: A base year. The result would be that the GDP in 2000 equals $ 300 million × 1 ⁄ 2 = $ 150 million , in 1990 monetary terms. We would see that the country's GDP had realistically increased 50 percent over that period, not 200 percent, as it might appear from the raw GDP data. The GDP adjusted for changes in money value in this way is called the real GDP . The factor used to convert GDP from current to constant values in this way

460-522: A compromise averting a prolonged tumble off the fiscal cliff." Minutes later, the president flew back to Hawaii to rejoin his family for their holiday vacation. Obama signed the official copy of the bill by autopen from there late on January 2, 2013. The Congressional Budget Office (CBO) analyzes the effects of legislation on the deficit and economy. Describing the effects of the American Taxpayer Relief Act (ATRA) depends on which baseline

552-466: A continuing resolution that would allow for reprogramming requests to shift $ 10 billion in funds under the sequestration limit, however civilian furloughs across all Pentagon budget areas will be required to meet wartime costs. In May 2013, Army Chief of Staff Gen. Ray Odierno warned that the lack of training in 2013 due to sequestration had already impacted on Army readiness. The sequestration mandated cuts in drug enforcement are expected to result in

644-518: A country becomes increasingly in debt, and spends large amounts of income servicing this debt this will be reflected in a decreased GNI but not a decreased GDP. Similarly, if a country sells off its resources to entities outside their country this will also be reflected over time in decreased GNI, but not decreased GDP. This would make the use of GDP more attractive for politicians in countries with increasing national debt and decreasing assets. Gross national income (GNI) equals GDP plus income receipts from

736-517: A country or region. Several national and international economic organizations maintain definitions of GDP, such as the OECD and the International Monetary Fund . The ratio of GDP to the total population of the region is the GDP per capita and can approximate a concept of a standard of living . Nominal GDP does not reflect differences in the cost of living and the inflation rates of

828-471: A country's borders, but by an enterprise owned by somebody outside the country, counts as part of its GDP but not its GNI; on the other hand, production by an enterprise located outside the country, but owned by one of its citizens, counts as part of its GNI but not its GDP. For example, the GNI of the US is the value of output produced by American-owned firms, regardless of where the firms are located. Similarly, if

920-637: A country's citizens at home and abroad rather than its "resident institutional units" (see OECD definition above). The switch from GNP to GDP in the United States occurred in 1991. The role that measurements of GDP played in World War II was crucial to the subsequent political acceptance of GDP values as indicators of national development and progress. A crucial role was played here by the U.S. Department of Commerce under Milton Gilbert where ideas from Kuznets were embedded into institutions . The history of

1012-406: A country's production has increased (or decreased, if the growth rate is negative) compared to the previous year, typically expressed as percentage change . The economic growth can be expressed as real GDP growth rate or real GDP per capita growth rate . GDP can be adjusted for population growth, also called Per-capita GDP or GDP per person . This measures the average production of a person in

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1104-513: A doubling of cocaine imports into the United States. Various sources have estimated the impact on taxpayers from the tax increases that would have occurred if the Bush income tax cuts and the Obama payroll tax cut had been allowed to expire with the fiscal cliff. The table below shows the dollar and percentage increase in income taxes for the 2013 tax year, if the fiscal cliff had taken effect. Each piece of

1196-510: A failure by this Congress to act before it adjourns" but complained that "lawmakers seem to have gotten as close as they could to doing the bare minimum." Economist Paul Krugman wrote that ATRA allowed liberals to avoid spending cuts or entitlement reform, while conservatives allowed income tax rate increases for the first time since 1993. Krugman believed that Obama should have bargained harder for more revenue. He also estimated that another 2% GDP in annual deficit reduction would be required over

1288-514: A fiscal-cliff scenario. In late February 2012, Ben Bernanke , chairman of the U.S. Federal Reserve , popularized the term "fiscal cliff" for the upcoming reduction in the deficit. Before the House Financial Services Committee he described that "a massive fiscal cliff of large spending cuts and tax increases" would take place on January 1, 2013. Some analysts had argued that fiscal slope or fiscal hill would have been

1380-534: A great extent, rather leaving that for further negotiations and legislation. The American Taxpayer Relief Act passed by a wide majority in the Senate, with both Democrats and Republicans supporting it, while most of the House Republicans opposed it. In all, the bill included $ 600 billion over ten years in new tax revenue, about one-fifth of the revenue that would have been raised had no legislation been passed. For

1472-405: A high probability of recession (a 1.3% GDP contraction) during the first half of the year, followed by 2.3% growth in the second half. GDP Gross domestic product ( GDP ) is a monetary measure of the market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic health of

1564-627: A margin of 89–8. The House passed the bill without amendments by a margin of 257–167 at about 11 am that same morning. Eighty-five House Republicans and 172 Democrats voted in favor while 151 Republicans and 16 Democrats were opposed. CBO projections of the sources of deficit reduction in the FY2013 budget, not counting economic feedback. A number of laws led to the fiscal cliff, including these provisions: Without new legislation, these provisions were to automatically go into effect on January 1, 2013. Some provisions increased taxes (the expiration of

1656-563: A more appropriate analogy because while the cumulative economic effect over all of 2013 would be substantial, it would not have been felt immediately but rather gradually as the weeks and months went by. During a lame-duck session in December 2010, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 . The act extended the Bush tax cuts for an additional two years (until January 1, 2013) and " patched "

1748-758: A projected $ 157 billion decline in the 2013 deficit over 2012, rather than the sharp $ 487 billion decrease projected under the fiscal cliff. The raise in revenue contained in the ATRA came from increased marginal income and capital gains tax rates relative to their 2012 levels for annual income over $ 400,000 ($ 450,000 for couples); a phase-out of certain tax deductions and credits for those with incomes over $ 250,000 ($ 300,000 for couples); an increase in estate taxes relative to 2012 levels on estates over $ 5 million; and expiration of payroll tax cuts (a 2% increase for most taxpayers earning under approximately $ 110,000). None of these changes would expire. At 12:01 am EST on January 1, 2013,

1840-467: Is US$ 5,040,107.75 (in a million). Predictably, as a developed country, Japan has a higher GNI (by 182,779.46, in millions of USD), which is indicative that the production level in the country is higher than that of national production. On the other hand, the case with Armenia is the opposite, with GDP being lower than GNI by US$ 196.12 (in million). This demonstrates that countries receive investments and foreign aid from abroad. The Total income divided by

1932-425: Is also sometimes expressed as: The third way to estimate GDP is to calculate the sum of the final uses of goods and services (all uses except intermediate consumption) measured in purchasers' prices. Market goods that are produced are purchased by someone. In the case where a good is produced and unsold, the standard accounting convention is that the producer has bought the good from themselves. Therefore, measuring

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2024-838: Is calculated this way it is sometimes called gross domestic income (GDI), or GDP (I). GDI should provide the same amount as the expenditure method described later. By definition, GDI is equal to GDP. In practice, however, measurement errors will make the two figures slightly off when reported by national statistical agencies. This method measures GDP by adding incomes that firms pay households for factors of production they hire – wages for labour, interest for capital, rent for land and profits for entrepreneurship. The US "National Income and Product Accounts" divide incomes into five categories: These five income components sum to net domestic income at factor cost. Two adjustments must be made to get GDP: Total income can be subdivided according to various schemes, leading to various formulae for GDP measured by

2116-471: Is called the GDP deflator . Unlike consumer price index , which measures inflation or deflation in the price of household consumer goods, the GDP deflator measures changes in the prices of all domestically produced goods and services in an economy including investment goods and government services, as well as household consumption goods. Real GDP can be used to calculate the GDP growth rate, which indicates how much

2208-423: Is contributed at each stage of production. This approach mirrors the OECD (Organisation for Economic Co-operation and Development) definition given above. Gross value added = gross value of output – value of intermediate consumption. Value of output = value of the total sales of goods and services plus the value of changes in the inventory. The sum of the gross value added in the various economic activities

2300-404: Is gone, and before the bill's final passage ... House Republican leaders struggled all day to quell a revolt among caucus members who threatened to blow up a hard-fought compromise that they could have easily framed as a victory." The Committee for a Responsible Federal Budget said that the bill avoided most of the economic harm from the fiscal cliff and set useful precedents regarding paying for

2392-404: Is known as "GDP at factor cost". GDP at factor cost plus indirect taxes less subsidies on products = "GDP at producer price". For measuring the output of domestic product, economic activities (i.e. industries) are classified into various sectors. After classifying economic activities, the output of each sector is calculated by any of the following two methods: The value of output of all sectors

2484-432: Is not avoided. Cuts totaling $ 110 billion per year will be applied from 2013 to 2022, split evenly ($ 55 billion each) between defense and non-defense discretionary spending. For scale, discretionary funding for 2011 totaled $ 1,278 billion: budget authority of $ 712 billion for defense and funding totaling $ 566 billion for non-defense activities. During 2013, discretionary spending would be maintained around 2012 levels due to

2576-587: Is that GDP defines its scope according to location, while GNI defines its scope according to ownership. In a global context, world GDP and world GNI are, therefore, equivalent terms. GDP is a product produced within a country's borders; GNI is product produced by enterprises owned by a country's citizens. The two would be the same if all of the productive enterprises in a country were owned by its own citizens and those citizens did not own productive enterprises in any other countries. In practice, however, foreign ownership makes GDP and GNI non-identical. Production within

2668-450: Is then added to get the gross value of output at factor cost. Subtracting each sector's intermediate consumption from gross output value gives the GVA (=GDP) at factor cost. Adding indirect tax minus subsidies to GVA (GDP) at factor cost gives the "GVA (GDP) at producer prices". The second way of estimating GDP is to use "the sum of primary incomes distributed by resident producer units". If GDP

2760-528: Is used in comparison. The CBO reported its estimates of the budgetary effects of ATRA on January 1, 2013. These effects were measured relative to the CBO's March 2012 "Baseline scenario", which assumed significant deficit reduction due to the expiration of the Bush tax cuts and implementation of spending cuts under the Budget Control Act of 2011. CBO's March 2012 "Baseline scenario" assumed the total deficits for

2852-691: The 2010 Tax Relief Act , were scheduled to expire on December 31, 2012. Planned spending cuts under the Budget Control Act of 2011 also came into play. That Act was passed as a compromise to resolve a dispute concerning the US debt ceiling and address the failure of the 111th Congress to pass a federal budget. Discretionary spending for federal agencies and cabinet departments would have been reduced through broad cuts referred to as budget sequestration . Mandatory programs, such as Social Security , Medicaid , federal pay (including military pay and pensions) and veterans' benefits would have been exempted from

American Taxpayer Relief Act of 2012 - Misplaced Pages Continue

2944-534: The Affordable Care Act imposed new taxes on families making more than $ 250,000 a year ($ 200,000 for individuals) starting at the same time. At the end of 2011, the patch to the AMT exemptions expired. Technically, the AMT thresholds immediately reverted to their 2000 tax year levels, a drop of 26% for single people and 40% for married couples. Anyone over these reduced thresholds at the end of 2012 would be subject to

3036-583: The Budget Control Act of 2011 as part of an agreement to resolve the debt-ceiling crisis . The Act provided for a Joint Select Committee on Deficit Reduction (the "super committee") to produce legislation by late November that would decrease the deficit by $ 1.2 trillion over ten years. When the super committee failed to act, another part of the BCA went into effect. This directed automatic across-the-board cuts (known as "sequestrations") split evenly between defense and domestic spending, beginning on January 2, 2013. Also,

3128-598: The Human Development Index or Better Life Index , as better approaches to measuring the effect of the economy on human development and well being . William Petty came up with a concept of GDP, to calculate the tax burden , and argue landlords were unfairly taxed during warfare between the Dutch and the English between 1652 and 1674. Charles Davenant developed the method further in 1695. The modern concept of GDP

3220-723: The Lexington Institute has noted that, as entitlement programs are largely exempt from the mandated cuts, sequestration would result in these programs assuming a larger percentage of the (reduced) budget, while spending on other programs such as defense would make up a smaller percentage of the budget. Secretary of the Navy Ray Mabus has said that continuing to operate under a series of continuing resolutions would be just as bad as sequestration, because these would freeze all programs at last year's spending levels, instead of allowing each program to adjust to its current situation. Also

3312-607: The exemptions to the Alternative Minimum Tax (AMT) for tax year 2011. This act also authorized a one-year reduction in the Social Security ( FICA ) employee-payroll tax. The reduction was extended for the 2013 year by the Middle Class Tax Relief and Job Creation Act of 2012 , which also extended federal unemployment benefits and the freeze on Medicare physician payments. On August 2, 2011, Congress passed

3404-637: The 112th Congress at noon on January 3, 2013 (all legislation under consideration expires at the end of each Congress), and failure to pass a bill and thus prolong the time over the cliff was seen as politically disadvantageous by the Republican leadership, and so the House moved towards a vote the same day. The House passed the bill without amendments by a margin of 257–167 at about 11 p. m. EST on January 1, 2013. 85 Republicans and 172 Democrats voted in favor while 151 Republicans and 16 Democrats were opposed. Speaker of

3496-465: The 2013 spending from $ 3,554 billion to $ 3,604 billion, an increase of $ 41 billion or 1.15% versus 2012 spending of $ 3,563 billion. After adjusting for these changes, the deficit was projected to be $ 971 billion in 2013 instead of the $ 641 billion projected prior to ATRA, an increase of $ 330 billion. Both deficit projections were below the 2012 deficit of $ 1,128 billion by $ 157 billion and $ 487 billion, respectively. The Wall Street Journal reported that

3588-421: The 2013–2022 period would be $ 2,887 billion. Debt held by the public (a partial measure of the national debt) at the end of 2022 would be $ 15,115 billion, resulting in a ratio of debt held by the public to GDP of 61.3%. The ratio was projected to be 73.2% in 2012. Applying the amounts in the ATRA to the baseline (a rough approximation pending further CBO scoring), passage of the ATRA raises the: For comparison,

3680-421: The AMT. Therefore, more taxpayers would pay more unless some legislation was passed (as was done in 2007) that affects the exemptions retroactively. The fiscal cliff was finally eliminated at the very last minute during late-night and early-morning sessions of Congress on New Year's Eve and New Year's Day . During a 2 am vote on January 1, 2013, the Senate passed the American Taxpayer Relief Act of 2012 by

3772-568: The Baseline scenario. CBO separately indicated in January 2013 that $ 600 billion in additional interest costs over the 2013–2022 period were not included in their initial assessment discussed above. This increases the deficit estimate from $ 6,858 billion (Baseline scenario with ATRA adjustment above) to $ 7,458 billion. This additional interest cost arises due to higher deficits relative to the Baseline. While ATRA would reduce short-term economic impact due to

American Taxpayer Relief Act of 2012 - Misplaced Pages Continue

3864-479: The Bush and FICA payroll tax cuts and the new Affordable Care tax and AMT thresholds) while others reduced spending (sequestration, expiration of unemployment benefits and implementation of the Medicare SGR ). Some lawmakers had intended to attach a bipartisan extension to the expiring wind-power tax credit. Unlike the provisions above, this will reduce , not increase, taxes by $ 1.3 billion. Proposals to avoid

3956-504: The CBO's "Alternative Scenario", which assumed the Bush tax cuts would be extended and the spending cuts in the Budget Control Act avoided, assumed $ 10,731 billion in cumulative deficits during the 2013–2022 period. The ATRA results in $ 6,858 billion in cumulative deficits, roughly splitting the difference between the two scenarios. In other words, ATRA improves the deficit picture relative to the Alternative scenario, but worsens it relative to

4048-623: The CR is $ 4.6 billion below the proposed budget, which matches the $ 4.6 billion cut of sequestration. Should these both apply then the Department of the Navy would be almost $ 10 billion below plan. The Navy also suffers from congressional restrictions on shipbuilding and conversion which further strains their limited budget. The military has already cut spending in anticipation of sequestration. Defense Secretary Leon Panetta compared this reduction in spending to

4140-551: The House John Boehner voted for the bill, a break from the usual custom of the speaker not voting at all. The action by the House in bringing the bill up was itself a break from the normal " Hastert rule " as well, in that a majority of the majority Republican caucus did not support it. The House's passage brought to a close what the Associated Press called "Congress' excruciating, extraordinary New Year's Day approval of

4232-483: The Obama administration, with the final agreement being attributed to talks between Vice President Joe Biden and Senate Minority Leader Mitch McConnell . Some Democrats criticized the bill for not raising taxes on the wealthy more, while Republicans criticized it for raising tax rates while not providing explicit spending cuts. The final actions on the bill came during Congressional sessions on New Year's Eve and New Year's Day . At around 2 a.m. EST on January 1, 2013,

4324-408: The Senate passed the bill, by a margin of 89–8. 49 Democrats (and Democratic-caucusing Independents) and 40 Republicans voted in favor while 3 Democrats and 5 Republicans voted against. The prospect was raised that the House would pass an amended bill that included $ 300 billion in spending cuts. But it was determined to be unlikely that the Senate would vote on any amended legislation before the end of

4416-463: The US "technically" went over the fiscal cliff. Around 2 am EST on January 1, 2013, the U.S. Senate passed this compromise bill by an 89–8 margin. At about 11 pm that evening, the U.S. House of Representatives passed the same legislation without amendments by a 257–167 vote. U.S. President Barack Obama signed it into law the next day. However, the budget sequestration was only delayed and

4508-982: The USAF has moved to shut down the Tethered Aerostat Radar System which has proved vital in the fight against the Illegal drug trade . The looming cuts have already impacted national security strategy with the February 6, 2013 cancellation of the Harry S. Truman deployment, which marked an end to the policy of keeping two carriers in the Persian Gulf region. Sequestration would also delay plans to equip F-35 fighters with B61 nuclear bombs that have been upgraded to JDAM levels of accuracy to give these tactical nuclear weapons strategic effectiveness. However should sequestration come into effect, it would simply reduce defense spending to

4600-427: The accounting year. ) So for example if a car manufacturer buys auto parts , assembles the car and sells it, only the final car sold is counted towards the GDP. Meanwhile, if a person buys replacement auto parts to install them on their car, those are counted towards the GDP. According to the U.S. Bureau of Economic Analysis, which is responsible for calculating the national accounts in the United States, "In general,

4692-503: The activation of the Budget Control Act of 2011 's budget sequestration provisions. A compromise measure, the Act gives permanence to the lower rate of much of the Bush tax cuts, while retaining the higher tax rate at upper income levels that became effective on January 1 due to the expiration of the Bush tax cuts. It also establishes caps on tax deductions and credits for those at upper income levels. It does not tackle federal spending levels to

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4784-643: The amount that would be provided if funding grew at the rate of inflation after 2011. Under an assumption that the obligation limitations for certain transportation programs grow over time at the rate of inflation, nondefense funding in 2021 would represent 2.8 percent of GDP; by comparison, such funding has averaged 4.1 percent of GDP during the past decade (see Figure 6)." Alan Houseman of the Center for Law and Social Policy has also argued that significant cuts to programs included under non-defense discretionary spending would harm low-income families deeply. Loren Thompson of

4876-481: The amount that would occur if the amount of funding for 2011 grew at the rate of inflation. When measured as a share of GDP, funding for defense would decline by about 1 percentage point from 2011 to 2021, or by more than one-fourth (see Table 5). Funding for defense in 2021 (excluding overseas contingency operations) would represent 2.7 percent of GDP; by comparison, annual funding for defense (excluding overseas contingency operations) has averaged 3.4 percent of GDP during

4968-572: The baseline projection. If they acted to extend current policies, keeping lower tax rates in place and postponing or preventing the spending cuts, the next decade would more closely resemble the alternative fiscal scenario. Baseline projection. The CBO has been publishing baseline projections, following existing law, since 1985. Under the baseline projection (with the "cliff" occurring), tax cuts are allowed to expire and spending cuts are implemented in 2013, resulting in higher tax revenues plus reduced spending, thus lowering deficits, debt and interest for

5060-522: The bill's tax provisions "represented the largest tax increase in the past two decades", based on the year-to-year increase in tax rates from 2012 to 2013. However, Dave Camp , the Republican chair of the House Ways and Means Committee , called the same provisions the "largest tax cut in American history", referring to the fact that the bill's tax rates replace much higher rates for 2013 that were provided for in

5152-401: The cliff, it would slow long-term growth relative to the lower deficit Baseline scenario. The CBO's August 2012 "Baseline scenario" assumed revenue would increase from $ 2,435 billion in 2012 to $ 2,913 billion in 2013, an increase of $ 478 billion or 19.63%. It also assumed spending would decline from $ 3,563 billion in 2012 to $ 3,554 billion in 2013, a decrease of $ 9 billion or -0.25%. The deficit

5244-540: The concept of GDP should be distinguished from the history of changes in many ways of estimating it. The value added by firms is relatively easy to calculate from their accounts, but the value added by the public sector , by financial industries, and by intangible asset creation is more complex. These activities are increasingly important in developed economies, and the international conventions governing their estimation and their inclusion or exclusion in GDP regularly change in an attempt to keep up with industrial advances. In

5336-429: The countries; therefore, using a basis of GDP per capita at purchasing power parity (PPP) may be more useful when comparing living standards between nations, while nominal GDP is more useful comparing national economies on the international market. Total GDP can also be broken down into the contribution of each industry or sector of the economy. GDP is often used as a metric for international comparisons as well as

5428-401: The country. GDP per capita is often used as an indicator of living standards. The major advantage of GDP per capita as an indicator of the standard of living is that it is measured frequently, widely, and consistently. It is measured frequently in that most countries provide information on GDP every quarter, allowing trends to be seen quickly. It is measured widely in that some measure of GDP

5520-505: The debt ceiling was not changed, thus triggering the United States debt-ceiling crisis of 2013 . The term fiscal cliff has been used in the past to refer to various fiscal issues. The term started being used in the context of the expiration of the Bush tax cuts in 2010. In 2011, the term started to be used to refer to the point at which tax cuts would expire, and spending cuts would be triggered, that would have occurred in 2013 under

5612-521: The fiscal cliff involved repealing legislation containing certain of these provisions or passing new legislation to extend provisions that were due to expire. Different proposals were to include changes to some or all of the above provisions. For example, the Congressional Budget Office 's "Alternative Fiscal Scenario" included only the first four items above. Changes to other provisions were sometimes included in such proposals, such as changing

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5704-410: The fiscal cliff triggered widespread public attention in late 2012 due to its projected short-term fiscal and economic impact. ATRA eliminated much of the fiscal cliff's tax side while the reduction in spending caused by budget sequestration was delayed for two months. With ATRA's passage, the CBO projected an 8.13% increase in revenue and a 1.15% increase in spending for fiscal year 2013. The act caused

5796-600: The fiscal cliff would have had varying effects on people at different income levels. Low-income households are most affected by expiring expansions of the child tax credit and earned income tax credit. Middle-income households are affected most by the payroll tax and income tax . Households at the top income level are most affected by the income tax and the tax increases on unearned income such as capital gains. Although European companies and investors will hardly see any direct taxation effects, corporate taxation of their U.S. subsidiaries may change significantly. While Congress

5888-466: The fiscal cliff would have likely caused a mild recession with higher unemployment in 2013, followed by strengthening in the labor market with increased economic growth. The American Taxpayer Relief Act of 2012 (ATRA) addressed the fiscal cliff's revenue side by implementing smaller tax increases compared to the expiration of the Bush tax cuts. Adjustments to spending were expected to be resolved in early 2013. Intense debate and media coverage regarding

5980-553: The income approach. A common one is: The sum of COE , GOS and GMI is called total factor income; it is the income of all of the factors of production in society. It measures the value of GDP at factor (basic) prices. The difference between basic prices and final prices (those used in the expenditure calculation) is the total taxes and subsidies that the government has levied or paid on that production. So adding taxes less subsidies on production and imports converts GDP(I) at factor cost to GDP(I) at final prices. Total factor income

6072-609: The inflation adjusted cold war average. On 20 February 2013, Defense Department Controller Robert Hale said that rather than cancelling contracts outright, the DoD would instead use furloughs and simply not exercise contract options for supplies and services. Hale testified the next month and told the Congress that it was their actions that were preventing the Pentagon from making sensible budget reductions and therefore forcing furloughs of defense civilian employees. On 26 March 2013, Obama signed

6164-443: The information required (especially information on expenditure and production by governments). The raw GDP figure as given by the equations above is called the nominal, historical, or current GDP. When one compares GDP figures from one year to another, it is desirable to compensate for changes in the value of money—for the effects of inflation or deflation. To make it more meaningful for year-to-year comparisons, it may be multiplied by

6256-525: The laws previously in effect. In a news analysis piece, The New York Times wrote that "Just a few years ago, the tax deal pushed through Congress ... would have been a Republican fiscal fantasy, a sweeping bill that locks in virtually all of the Bush-era tax cuts, exempts almost all estates from taxation, and enshrines the former president's credo that dividends and capital gains should be taxed equally and gently. But times have changed, President George W. Bush

6348-514: The long run to stabilize the debt situation. United States fiscal cliff This is an accepted version of this page Bowles–Simpson Commission 2007–2008 financial crisis 2013 budget sequestration Related events The United States fiscal cliff refers to the combined effect of several previously-enacted laws that came into effect simultaneously in January 2013, increasing taxes and decreasing spending. The Bush tax cuts of 2001 and 2003, which had been extended for two years by

6440-447: The next decade and beyond. Future deficits would be reduced from an estimated 8.5% of GDP in 2011 to 1.2% by 2021. Revenues would rise towards 24% GDP, versus the historical average 18% GDP. The total deficit reduction or debt avoidance over ten years would have been as much as $ 7.1 trillion, versus the projected $ 10–11 trillion debt increase under the CBO's alternate scenario. In other words, roughly 70% of debt increases projected over

6532-488: The next ten years could have been avoided by "going over the cliff" and allowing the expiration of tax cuts and required sequestration expected at the end of 2012. CBO estimated, under the baseline projection, that public debt would rise from 69% GDP in 2011 to 84% by 2035. In the long run, lower deficits and debt would have led to relatively higher growth estimates. But, in the short run, real GDP growth in 2013 would have likely been reduced to −0.5% from 1.1%. This would mean

6624-539: The original caps on discretionary appropriations contained in 2011's Budget Control Act, indexing the AMT exemptions for inflation (rather than capping them for one year at a time) or the wholesale or partial reform of the tax laws and/or the entitlement programs (sometimes called "the grand bargain"). The spending reduction elements of the fiscal cliff are primarily contained within the Budget Control Act of 2011 , which directed that both defense and non-defense discretionary spending be reduced by "sequestration" if Congress

6716-574: The past decade." The CBO estimated the possible impact on non-defense discretionary spending in October 2011 testimony: "If defense and nondefense appropriations were cut proportionally relative to the funding that would be necessary to keep pace with inflation, nondefense budget authority would decrease from $ 511 billion in 2011 to $ 505 billion in 2012 before rising again and reaching $ 597 billion in 2021 (see Table 4). Between 2012 and 2021, budget authority for nondefense purposes would be $ 418 billion less than

6808-460: The population is the Per capita income . The international standard for measuring GDP is contained in the book System of National Accounts (2008), which was prepared by representatives of the International Monetary Fund , European Union , Organisation for Economic Co-operation and Development , United Nations and World Bank . The publication is normally referred to as SNA2008 to distinguish it from

6900-644: The possible impact on defense spending in October 2011 testimony: "Compliance with the caps on discretionary funding could occur through many different combinations of defense and non-defense funding. For example, defense and nondefense appropriations might be cut proportionally relative to the funding that would be necessary to keep pace with inflation. In that case, funding for defense programs apart from overseas contingency operations would drop from $ 552 billion in 2011 to $ 538 billion in 2012 before rising again and reaching $ 637 billion in 2021 (see Table 3). Between 2012 and 2021, such funding would be $ 445 billion less than

6992-430: The previous edition published in 1993 (SNA93) or 1968 (called SNA68) SNA2008 provides a set of rules and procedures for the measurement of national accounts. The standards are designed to be flexible, to allow for differences in local statistical needs and conditions. Within each country GDP is normally measured by a national government statistical agency, as private sector organizations normally do not have access to

7084-503: The products must be bought by somebody, therefore the value of the total product must be equal to people's total expenditures in buying things. The income approach works on the principle that the incomes of the productive factors ("producers", colloquially) must be equal to the value of their product, and determines GDP by finding the sum of all producers' incomes. Also known as the Value Added Approach, it calculates how much value

7176-445: The ratio between the value of money in the year the GDP was measured and the value of money in a base year. For example, suppose a country's GDP in 1990 was $ 100 million and its GDP in 2000 was $ 300 million . Suppose also that inflation had halved the value of its currency over that period. To meaningfully compare its GDP in 2000 to its GDP in 1990, we could multiply the GDP in 2000 by one-half, to make it relative to 1990 as

7268-518: The rest of the world minus income payments to the rest of the world. In 1991, the United States switched from using GNP to using GDP as its primary measure of production. The relationship between United States GDP and GNP is shown in table 1.7.5 of the National Income and Product Accounts . Another example that amplifies the difference between GDP and GNI is the comparison of developed and developing country indicators. The GDP of Japan for 2020

7360-408: The same result. They are the production (or output or value added) approach, the income approach, and the speculated expenditure approach. It is representative of the total output and income within an economy. The most direct of the three is the production approach, which sums up the outputs of every class of enterprise to arrive at the total. The expenditure approach works on the principle that all of

7452-417: The sequester and doc fix but failed to include any serious entitlement reforms, enact serious spending cuts, or stabilize the debt as a share of the economy. The president of The Peter G. Peterson Foundation said the fiscal cliff agreement "was a significant missed opportunity to put the nation on a sustainable fiscal path." The Washington Post ' s editorial board said "the bill's enactment is far better than

7544-531: The sequester. However, the spending begins to rise thereafter, but not at the pace projected prior to the sequester. In other words, the trajectory of spending increases is reduced, but spending is not frozen at 2012 levels. Increases in discretionary spending from 2013 to 2021 would be about 1.5% annually, significantly below the prior decade. For example, according to the CBO Historical Tables, defense spending (including overseas contingency operations for

7636-401: The source data for the expenditures components are considered more reliable than those for the income components [see income method, above]." Encyclopedia Britannica records an alternate way of measuring exports minus imports: notating it as the single variable NX. GDP can be contrasted with gross national product (GNP) or, as it is now known, gross national income (GNI). The difference

7728-521: The spending cuts. The fiscal cliff would have increased tax rates and decreased government spending through sequestration. This would lead to an operating deficit (the amount by which government spending exceeds its revenue) that was projected to be reduced by roughly half in 2013. The previously-enacted laws causing the fiscal cliff were projected to produce a 19.63% increase in revenue and a 0.25% reduction in spending between fiscal years 2012 to 2013. The Congressional Budget Office (CBO) had estimated that

7820-424: The tax year 2013, some taxpayers experienced the first year-to-year income-tax rate increase since 1993, although the rate increase came about not as a result of the 2012 Act, but as a result of the expiration of the Bush tax cuts. The new rates for income, capital gains, estates, and the alternative minimum tax would be made permanent. The passage of the bill came after days of negotiations between Senate leaders and

7912-536: The total expenditure used to buy things is a way of measuring production. This is known as the expenditure method of calculating GDP. GDP (Y) is the sum of consumption (C) , investment (I) , government expenditures (G) and net exports (X − M) . Here is a description of each GDP component: C , I , and G are expenditures on final goods and services; expenditures on intermediate goods and services do not count. (Intermediate goods and services are those used by businesses to produce other goods and services within

8004-585: The wars in Iraq and Afghanistan) grew from $ 295 billion in 2000 to $ 700 billion in 2011, an annual growth rate of 8.2%. Non-defense discretionary spending grew at a 6.6% annual rate during that time, from $ 320 billion to $ 646 billion. The austerity represented by the sequester is not unprecedented; from 1990 to 1999, defense spending actually declined by about 1% annually, from $ 300 billion to $ 276 billion, although non-defense discretionary spending grew by 4.5% annually, rising from $ 200 to $ 297 billion. The CBO estimated

8096-473: The words of one academic economist, "The actual number for GDP is, therefore, the product of a vast patchwork of statistics and a complicated set of processes carried out on the raw data to fit them to the conceptual framework." China officially adopted GDP in 1993 as its indicator of economic performance. Previously, China had relied on a Marxist-inspired national accounting system. GDP can be determined in three ways, all of which should, theoretically, give

8188-454: Was debating actions to take to mitigate the fiscal cliff, the Congressional Budget Office provided policy-makers with projections of two fiscal scenarios for the years 2013 to 2022: These painted starkly different fiscal futures. If Congress and the President did not act, allowing tax cuts to expire and mandated spending cuts to be implemented, the next decade would have more closely resembled

8280-483: Was first developed by Simon Kuznets for a 1934 U.S. Congress report, where he warned against its use as a measure of welfare (see below under limitations and criticisms ). After the Bretton Woods Conference in 1944, GDP became the main tool for measuring a country's economy. At that time gross national product (GNP) was the preferred estimate, which differed from GDP in that it measured production by

8372-427: Was projected to be $ 641 billion in 2013, significantly below the 2012 deficit of $ 1,128 billion. The CBO's January 1, 2013 analysis of ATRA included adjustments to the Baseline scenario for 2013 of -$ 280 billion in revenues and +$ 50 billion in spending. This lowers the 2013 Baseline revenue projection from $ 2,913 to $ 2,633 billion, an increase of $ 198 billion or 8.13% versus 2012 revenues of $ 2,435 billion, while raising

8464-413: Was unable to agree on other spending cuts of similar size. The scope of the law excludes major mandatory programs such as Social Security and Medicare. As of January 2013 , Congress was unable to reach agreement on spending cuts and the sequestration was delayed until March 2013 as part of the American Taxpayer Relief Act of 2012. The effect on discretionary spending will be significant if the sequestration

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