SHATTUCK'S TAX FACTS
The real cliff-hanger Americans – and the world – are facing
by Alan Shattuck, CRTP
November 5, 2012
• How did we get into this mess?
• How what happens in the next two months will impact you and your business
You have probably heard recently about the “Fiscal Cliff” which is approaching at the end of 2012 and the beginning of 2013. What are people talking about? How could it affect me? What can be done to prevent it? How did we get into this mess?
A scenario known by economists as the “Fiscal Cliff” could unfold at the end of the year. The historically low tax rates first enacted under former President George W. Bush in 2001 and 2003 are set to expire at the end of this year, as are jobless benefits for the long-term unemployed, the temporary payroll tax cut, and other important tax-relief provisions. In addition, $1.2 trillion in across-the-board reductions in spending on federal programs would begin to phase in Jan. 2, 2013 if lawmakers fail to again reach a deficit-cutting deal by Jan. 2, 2013. The cuts are known as a “sequester.” To make matters even worse, the United States will likely hit its $16.4 trillion borrowing limit before the end of this year.
If Congress does not act, our country will face the “Fiscal Cliff” at the start of next year by combining lower spending and higher taxes extracting about $600 billion from the economy. Many economists think every dollar of deficit reduction will subtract almost the same amount from economic growth. According to estimates by the Congressional Budget Office (CBO), largely embraced by Wall Street and the U.S. Federal Reserve, the economy could contract by 0.5 percent in 2013.
Research by economists in academia and at the International Monetary Fund (IMF) suggests that a dollar of deficit reduction could drain as much $1.70 from the economy. This suggests that the prospective belt tightening much more dangerous. Locally, Barry Eichengreen, an economist at the University of California, Berkeley, says “You can take that 0.5 percent contraction and double it.”
I have to suggest that we, the voters, are responsible for much of the “Fiscal Cliff” by not holding our representatives in Congress to a higher standard. We elect them to represent us and what is best for our Country, not getting re-elected.
If something is not done now, we can expect unemployment rates to spike over 9 percent by the end of 2013 according to the CBO. Job losses could exceed over 270,000 in federal jobs and additional job losses in the private sector; Americans face at least $3,500 in fiscal cliff tax hits.
To further confuse the issues we are facing today, there is an election on Tuesday, Nov. 6, 2012. Be sure you know who and what you are voting for and then hold the winners to their campaign promises.
Please refer to my previous article