So as soon as the election was over I started hearing about this “fiscal cliff” and I had no idea what it was. All I knew was that it sounded scary and the consequences sounded similar to what happened in 2008. So I took to the internet to gain some knowledge and this is what I found:
Back in February 2012, Ben Bernanke (Chairman of the U.S. Federal Reserve) told the House Financial Services Committee that Congress needed to agree on a budget deal by January 1, 2013. He said that if this did not happen the country would face ” a massive fiscal cliff of large spending cuts and tax increases.”
The tax cuts that he speaks of are the Bush-era tax cuts and many many many other tax cuts and tax breaks that have been put in place over the last several years. Here are some of them that will expire come January 1, 2013:
– Tax credits for families with children and deductions for married couples.
– Tax credits from 2009 for low-income earners and college students.
– The Social Security tax cut from 2010. This would cost a person making $50,000 an extra $1,000 per year.
– About 80 tax breaks that were given mostly to businesses.
– There will also be a rise in income, investment gains, dividends, and estates taxes.
Because of the 2011 debt-ceiling crisis, Congress passed the Budget Control Act of 2011. This called for a Joint Select Committee on Deficit Reduction. They are charged with creating a deficit-reduction plan. The penalty for not doing this is that there will be a huge cut in defense and domestic programs, to the tune of $85 billion. The thought was that if they threatened with spending cuts in those areas, they would certainly feel the urgency of needing to come up with a plan.
What else is adding to this perfect storm?
– Medicare has proposed to cut its payments by $11 billion. This could cause hospitals and doctor’s offices to cut jobs.
– Extended unemployment benefits will be ending for about 2 million people.
What happens if January 1 2013 comes and goes with no agreement? Tax cuts will expire, everyone’s taxes will go up, our defense and domestic programs will lose funding. What could that mean to the individual person?
– Middle income families will see an increase in their taxes, about $2,000 a year. I personally have almost never paid taxes because my income has always been modest, but I see this as a reduction in the refund that I usually get.
– Because of the uncertainty, stocks could plunge.
– Up to 3.4 million jobs could be lost and unemployment could rise to 9.1 percent.
– Companies would likely put off hiring and expanding and may in turn tighten their belts even further.
So… This is the abbreviated version of this issue. How does this relate to you? What can you do in your own personal life now that you know what this “fiscal cliff” is about? How can you prepare? Did you learn something new by reading this?
Thanks for taking the time. I hope you feel a little more empowered and knowledgeable.