Thứ Năm, 27 tháng 12, 2012

What is the Fiscal Cliff?

I don't know about you all, but I have been hearing so much about the fiscal cliff and the imminent doom if we fall off of it. But what is it exactly? We have received comments from readers who enjoy these layman conversations regarding current public issues, so I decided some of you may be interested in what I found in my research.


Definition: Fiscal Cliff is a term used to describe a large amount of tax increases and federal spending cuts as an effort to decrease our nation's debt. It is called a cliff because the changes are so drastic. To me a more accurate description would be climbing out of the fiscal canyon, since the fiscal "cliff" is an effort to decrease our national deficit by $503 billion dollars between 2012 and 2013 and walk on somewhat safer ground again (though it will take our nation a while to completely recover financially).

Revenue Increases:
  • End of "Bush Tax Cuts" on December 31st 2012, which will result in about a 5% tax increase for the average American
  • Payroll tax cut which will result in a 2% increase in social security payroll tax
  • Loss of research and experimentation tax credits
  • Affordable Care Act Taxes starting January 2013, which will increase taxes for new healthcare legislation
Spending Cuts:
  • The Budget Control Act begins January 2 and pertains to the 30% of federal spending that is not considered mandatory spending. 50% of these cuts will be in national defense and the other 50 % will be on non defense items.
  • Extended unemployment benefits with end Dec. 31st 2012
  • The rate at which Medicare pays health-care providers with decrease to 30% on January 1st
Debt Ceiling:
  •  The debt ceiling is a legal limit of debt which the nation can incur. right now it is capped at $16.39 Trillion in borrowed money (debt). The treasury is expected to hit this limit early next year. This means, changing the law and increasing the limit, or keeping the law the same and receiving no more borrowed money.
What impact will this have on me?
  • In short, if the fiscal cliff is enacted the expected economic output is expected to decrease 0.5% which will send our economy into another recession for the first half of next year. This would result in a projected increase of unemployment to 9% or higher. Also, those who have jobs will be paying more taxes.
What are Republicans and Democrats fighting about?
  • Basically, neither Democrats or Republicans want the fiscal cliff to hit. No one wants another recession. The argument is basically over where cuts and tax increases need to be made to be most favorable to the American people. Unfortunately, each party has a different idea of favorable. The parties have different ideas on health-care tax increases, social security cuts, as well as which bracket of Americans should have an income tax increase. This is the very dumbed-down version. Hopefully they remember one of life's earliest lessons, compromise.
* For more in depth information visit www.cfr.org/

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