The federal government in the US faces scares in its budget because of higher spending which exceeds the total revenue that it gets from the taxpayers. In light of refusal by the congress to raise the debt ceiling above the current $16.4 trillion, the US government has a had to come up with several measures including enactment of laws like Budget Control Act 2011among other legislations which aim at cutting the government spending. All these measures are being undertaken amid increasing scare of a fiscal cliff. The economy is likely to witness a sharp reduction in budget deficit because of increase in taxes and spending cuts on the grants given to some programs in the country. The recent failure by the Congress to facilitate enactment of a budget for the current fiscal year, which has left the Office of Management and Budget with no baseline onto which FY2014 budget can be built is an indication that the country still faces the possibility of a fiscal cliff happening. Increased taxes and spending cuts because of a fiscal cliff will be evident in budgets of the local governments in the states. Most States have their budgets supported by the grants from federal allocations to fund for various projects in the states (Steinhauer, 2013).
With a number of tax breaks such as Bush era tax cuts extensions and expiry of other tax breaks, the US government has initiated measures to mitigate the budgets against of deficit. The cause of the fiscal cliff is mainly the failure by the Congress to pass legislations to raise the debt ceiling after the government hit the limit. This failure implies that Treasury is not able to make interest payments on the accumulated debt of the government and therefore a non repayment of loans from the side of the government. Budget Control Act 2011 mandated the government to implement spending cuts on some of the budgetary allocations in the country. The persistent delays in enactment of relevant legislations and extension of several tax cuts have brought the issue of fiscal cliff to near reality. Sequestration which involves a series of automatic across the board spending cuts are also being considered majorly because the Congress has been slow in passing legislations to reduce budget deficits. With subsequent delays in meeting the datelines and enactment of Taxpayer Relief Act 2012, sequestration commencement dateline has been extended to 1 March 2013 (Gravelle, 2013). Most victims in the tussle between the government and the Congress on rising taxes are probably the local governments and arguably everybody in the country, and more specifically for the agencies and programs which depend on discretionary measures from the state.
Effects on Local Governments
According to Tucker (2013), the fiscal cliff will not definitely demolish the operations in the states because they have tax revenues other than those from the federal government. However, the impact is likely to be seen in the agencies and programs within the states which almost entirely depend on the allocations and grants from the federal government for their budgets. Spending cuts will affect the programs of the state agencies and programs that depend on the government support. Discretionary programs such as child welfare services and substance abuse treatment for prisoners whose budgets are entirely depended on the federal grants for their operations will just many of the programs which will be greatly affected by the fiscal cliff in the states. Millions of funds which the local governments have been receiving from the federal government will not be forthcoming even as they are further required to reduce on their budgets through sequestration. The fiscal cliff is also likely to cause millions of job losses in states that support several programs with federal grants. According to a statement by over 130 mayors of cities across the country, the sequestration deal which will involve automatic cuts across all sectors is "perhaps the biggest threat to our metro economies” (Kurtz, 2013). This is because sequestration will touch on grants that support essential programs like law enforcement, wildlife preservation, mental health, education and other public services within the states operation and thus leads to the loss of jobs tied to the programs. The education and health sectors would be hit hardest with the fiscal cliff. In conclusion, it is evident that many programs which are run by the local governments are depended on the federal grants for their budget. A fiscal cliff will not only reduce the available funds to such programs but will also force millions of people out of their jobs.