Washington, D.C. -
In congressional hearings, Federal Reserve chairman Ben Bernanke told congress that unemployment will likely stay above 7% and that the third quarter looks "gloomy", due in part to the European debt crisis and the looming "fiscal cliff" regarding expiring Bush-era tax cuts due to expire this year and mandatory spending cuts across the board, including defense spending.
If the Bush-era tax cuts expire, the average American tax payer will have to cough up an additional $1,200 in taxes. Democrats want to let those tax cuts to expire for the wealthiest Americans but renew them for the middle class as permanent. Republicans, however, want to renew them for everyone arguing that the top income earners are also job creators, something some economist disagree with.
If democrats get their way, it will bring in an additional $700 billion, the result is less taxes for the middle class and less spending cuts to important programs, but making the wealthiest pay 'their fair shore of taxes" as they have stated.
Republicans contend that those top income earners are job creators and to tax them would mean they will create less jobs. Instead, they want to renew the Bush-era tax cuts for everyone, and cut government spending to make up the budget shortfalls.
According to the congressional budget office, a non-partisan research department of congress, the top 5% of Americans derive the majority of their income from stocks and investments in various packages, and do not directly invest in businesses that create new jobs. Republican content that through those investments, it eventually "trickles down" to small businesses and main street, while democrats say "trickle down" economics do not work.
Wall Street has been hoping for additional stimulus from the Federal Reserve, including the possibility of more asset purchases. That policy, known as quantitative easing, is meant to push interest rates even lower than their current historic lows.
Bernanke admitted that the Fed has been considering that option, but also sounded cautious about the risks. he also described the slow-to-improve employment figures as "frustratingly slow," the same term used a year ago in congressional hearings.
Stocks sunk lower as Bernanke spoke and gave not hints as to whether the fed will engage more into stimulus actions like in the past.