Are Americans ready for the fiscal cliff?
We should brace for higher taxes, reduced unemployment benefits, less hiring and pronounced market volatility.
By Rick Newman
It's tempting to tune out politics and the 2012 elections. Your time might be better spent getting a jump on holiday shopping. Or knitting a new sweater. Or watching Jersey Shore reruns.
But there's one bit of political theater people should be paying attention to, the so-called fiscal cliff. This is the big set of tax hikes and spending cuts that are set to go into effect at the end of the year, unless Congress intervenes. Like much of what goes on in Washington, the drama is unnecessary and perhaps even absurd. But the outcome could zap many Americans in the wallet.
A lot of political experts feel that Congress will come up with some kind of last-second deal that averts the worst-case scenario, which would be to do nothing and let all of those tax and spending provisions go into effect at once. That would lop as much as five percent off of GDP and promptly cause a recession. But there's no easy way around the decisions that need to be made, and Congress will probably enact at least a few of the measures set to go into effect. Here's what ordinary Americans ought to be preparing for:
A modest tax hike. The expiration of the Bush-era tax cuts, which comes at the end of this year, would represent a huge tax hike on working Americans, so Congress will probably put that off. But another temporary tax cut will probably be allowed to expire on schedule, which means most workers will experience a de facto tax hike starting January 1.
The payroll tax cut went into effect (in a slightly different form) in 2009, and it's already been extended for one year beyond its original expiration date. Basically, it cut the amount deducted from a typical paycheck to fund Social Security from 6.2 percent to 4.2 percent. That saved the typical worker about $85 per month, or $1,000 per year. The maximum savings for higher earners was about $2,000 per year. That money will once again be deducted from paychecks if the tax cut lapses, a change that will reduce the take-home pay of about 160 million Americans.
Reduced unemployment benefits. Another program that's set to expire—and probably will—is the federal extension of unemployment benefits. This temporary stimulus measure extended the unemployed benefits offered by the states—which typically last for 26 weeks—to as many as 99 weeks. The program is already winding down, and if the federal benefits aren't renewed, people who get laid off in 2013 will qualify only for the basic state program.
Skittish employers. CEOs are losing confidence in Washington's ability to handle basic challenges, and they're concerned that Congress could end up hurting the economy rather than helping it. A recent survey of CEOs by the Business Roundtable showed that confidence in the economy has fallen markedly in recent months. Just 58 percent of CEOs expect sales to pick up over the next six months, compared with 81 percent who felt that way earlier this year. And just 29 percent expect their companies to be hiring, down from 42 percent.
That means hiring through the end of the year could be even weaker than it has been lately. When hiring is weak, raises tend to be scarce as well. And consumers worried about their paychecks spend less, so it's shaping up as another bleak holiday season for retailers and the workers who depend on them.
Federal cuts in jobs and benefits. A few weeks ago, the White House issued a detailed report on where the spending cuts will hit if they go into effect as currently planned. The biggest losers would be defense agencies and contractors, but most federal agencies would face budget cuts of 8 percent or so. The same goes for civic, nonprofit or private programs funded by the government. Those cuts might end up being smaller, or going into effect later, but either way, it seems likely that a lot of people dependent on a government check will have to deal with cutbacks.
Pronounced volatility. Wall Street analysts think the time around the end of the year could be similar to August, 2011, which was when a big, needless fight over extending the nation's borrowing limit led to the first-ever downgrade of the U.S. credit rating by Standard & Poor's. The stock market fell by 7 percent and took six months to recover its losses.
This time around, even a good outcome could have damaging consequences. Economists and CEOs might be relieved if Congress delays the tax hikes and spending cuts set to go into effect, but Moody's has said it will join S&P in cutting the U.S. credit rating if Congress makes no progress later this year in cutting its annual deficits. Financial markets might yawn, or they might convulse. It would be wise to prepare for both scenarios.
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What I would do
No government sponsored aid to foreign countries.
No prohibiting individual aid to a foreign country unless the country is an enemy.
No tax on wages. No tax on investments. Tax on sales only.
No aid to anyone who is not a citizen.
To be a citizen in full standing you must be born of two citizens or be born of one citizen on United States land. Being born of one citizen in a foreign country or being born in this country of two non citizens would give you the right of dual citizenship on your 18th birthday; you would not be entitled to any benefits you had not earned.
No elected or hired employee of the government would be exempt from any law.
No government employee would be allowed to belong to a union.
Well it dose not mater who wins The White house they all bite. GOD will give you more stupid leaders
If you do not turn to him some day' or it might be to late.
37 states have opted out of setting up health care insurance exchanges. Under the law, the federal government will have to set them up and fund. That unknown expenditure is not in the vast amount of $ that are projected to implement the health care law as are many other provisions.Read all this as additional debt.
Recent studies suggest that the objective to bring health care access to everyone is more than likely to limit access as doctors opt out of medicaid and medicare, leave the profession, and shrink enrollments in med schools.
I am all for health care for everyone but so far I am convinced the approach we are taking will backfire.
Everything has a starting point. Politicians that enacted legislation to make it easy for people who couldnt afford homes to get loans was the original spark. Then everyone jumped in to capitalize. Liar loans, mortgage backed securities, artificially low interest rates, subsidies, Barney Franks Fannie and Freddie
Let me preface this by saying I was no supporter of Bush. However, when his admin rang the alarm bell on the growing number of flaky mortgages, they were branded as racist by Frank/Dodd crew.
Then came derivitaves. You know the rest of the story.
The scariest thing is that the current admin has continued to look the other way as Wall Street and other financial institutions have increased U. S. derivative exposure by $39 trillion. Worldwide derivatives are a staggering $600 TRILLION. Dodd/Frank financial reform exempted Fannie and Freddie. REFORM?
We have to take a solution based approach, not a poltical one. Anyone under the age of 65 should be scared out of their minds.
The U. S has the highest % of companies re locating overseas than any other country. With taxes, regulations, and government spending increasing, we are in for some harsh times ahead. Canada has a flat corporate rate around 19%-business is flocking there. With a flat rate, politicians cant punish there enemies and reward their friends so it will be hard to do in this country. Recent outcries about big oil tax breaks while pumping billions of $ into failing green energy, post office, Amtrak type ventures is nothing more than evidence of this.
Throw them out of office over and over until we get political leaders willing to risk their political future for the service of the people. It will take a while.
This fiscal cliff has been coming for many years while Congress sat on its well paid **** and did nothing about it. Congress will eventually do something to fix this mess or many congressmen will be swinging from various trees around the capital building.
We, the American public, have to sit and watch as the financial mess comes to a head. There is little we can do other than take it out on Congress, which I am positive will happen.
Too long the practical side of our politicians has been sidelined by party bull and that solves nothing.
Also, their benefits go bye bye. I wonder how much that would save?
Now we can proceed with other cuts, but no other cuts until our representatives pay and benefits have been negotiated by we the people.
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Breaking up big banks is an untested solution to the too big to fail problem that attempts to isolate and dismantle large, troubled institutions while protecting the rest of the economy.
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