Most in US won't be able to escape 'fiscal cliff'

Steve Williams

Site Founder, Site Co-Owner, Administrator
Ouch. No wonder the market is doing so poorly since the election

By CHRISTOPHER S. RUGABER, AP

WASHINGTON — Everyone who pays income tax — and some who don't _will feel it.

So will doctors who accept Medicare, people who get unemployment aid, defense contractors, air traffic controllers, national park rangers and companies that do research and development.

The package of tax increases and spending cuts known as the "fiscal cliff" takes effect in January unless Congress passes a budget deal by then. The economy would be hit so hard that it would likely sink into recession in the first half of 2013, economists say.

And no matter who you are, it will be all but impossible to avoid the pain.

Middle income families would have to pay an average of about $2,000 more next year, the nonpartisan Tax Policy Center has calculated.

Up to 3.4 million jobs would be lost, the Congressional Budget Office estimates. The unemployment rate would reach 9.1 percent from the current 7.9 percent. Stocks could plunge. The nonpartisan CBO estimates the total cost of the cliff in 2013 at $671 billion.

Collectively, the tax increases would be the steepest to hit Americans in 60 years when measured as a percentage of the economy.

"There would be a huge shock effect to the U.S. economy," says Mark Vitner, an economist at Wells Fargo.

Most of the damage — roughly two-thirds — would come from the tax increases. But the spending cuts would cause pain, too.

The bleak scenario could push the White House and Congress to reach a deal before year's end. On Tuesday, Congress returns for a post-election session that could last through Dec. 31. At a minimum, analysts say some temporary compromise might be reached, allowing a final deal to be cut early next year.

Still, uncertainty about a final deal could cause many companies to further delay hiring and spend less. Already, many U.S. companies say anxiety about the fiscal cliff has led them to put off plans to expand or hire.

A breakdown in negotiations could also ignite turmoil in financial markets, Vitner said. It could resemble the 700-point fall in the Dow Jones industrial average in 2008 after the House initially rejected the $700 billion bailout of major banks.

Since President Barack Obama's re-election, nervous investors have sold stocks. The Standard & Poor's 500 index sank 2.3 percent last week, its worst weekly drop since June. The sell-off resulted in part from anxiety over higher tax rates on investment gains once the fiscal cliff kicks in.

Last week, Obama said he was open to compromise with Republican leaders. But the White House said he would veto any bill that would extend tax cuts on income above $250,000.

Republican House Speaker John Boehner countered that higher tax rates on upper-income Americans would slow job growth. Boehner argued that any deal must reduce tax rates, eliminate special-interest loopholes and rein in government benefits.

More than 50 percent of the tax increases would come from the expiration of tax cuts approved in 2001 and 2003 and from additional tax cuts in a 2009 economic stimulus law.

The first set of tax cuts reduced rates on income, investment gains, dividends and estates. They also boosted tax credits for families with children. Deductions for married couples also rose. The 2009 measure increased tax credits for low-income earners and college students.

About 20 percent of the tax increase would come from the expiration of a Social Security tax cut enacted in 2010. This change would cost someone making $50,000 about $1,000 a year, or nearly $20 a week, and a household with two high-paid workers up to $4,500, or nearly $87 a week.

The end of the Social Security tax cut isn't technically among the changes triggered by the fiscal cliff. But because it expires at the same time, it's included in most calculations of the fiscal cliff's effects.

And it could catch many people by surprise.

"Every worker in America is going to see a reduction in their paycheck in the first pay period of 2013," Vitner noted.

An additional 20 percent of the tax increase would come from the end of about 80 tax breaks, mostly for businesses. One is a tax credit for research and development. Another lets companies deduct from their income half the cost of large equipment or machinery.

Mark Bakko, a Minneapolis accountant, says many mid-size companies he advises are holding off on equipment purchases or hiring until the fate of those tax breaks becomes clear. Bakko noted that the research and development credit typically lets a company that hired an engineer at a $100,000 salary cut its tax bill by $10,000. The credit has been routinely extended since the 1980s.

The rest of the tax increase would come mainly from the alternative minimum tax, or AMT. It would hit 30 million Americans, up from 4 million now.

The costly AMT was designed to prevent rich people from exploiting loopholes and deductions to avoid any income tax. But the AMT wasn't indexed for inflation, so it's increasingly threatened middle-income taxpayers. Congress has acted each year to prevent the AMT from hitting many more people.

Under the fiscal cliff, households in the lowest 20 percent of earners would pay an average of $412 more, the Tax Policy Center calculates. The top 20 percent would pay an average $14,000 more, the top 1 percent $121,000 more.

All this would lead many consumers to spend less. Anticipating reduced sales and profits, businesses would likely cut jobs. Others would delay hiring.

Another part of the cliff is a package of across-the-board spending cuts to defense and domestic programs — cuts the CBO says would total about $85 billion. Congress and the Obama administration agreed last year that these cuts would kick in if a congressional panel couldn't agree on a deficit-reduction plan. The magnitude of the cuts was intended to force agreement. It didn't.

Defense spending would shrink 10 percent. Defense Secretary Leon Panetta has said those cuts would cause temporary job losses among civilian Pentagon employees and major defense contractors. Spending on weapons programs would be cut.

For domestic programs, like highway funding, aid to state and local governments and health research, spending would drop about 8 percent. Education grants to states and localities; the FBI and other law enforcement; environmental protection; and air traffic controllers, among others, would also be affected, the White House says.

Hospitals and doctors' offices could also cut jobs if an $11 billion cut in Medicare payments isn't reversed.

Extended unemployment benefits for about 2 million people would end. The extra benefits provide up to 73 weeks of aid.

"It would be nice if we could ... address these issues before the very last moment," said Donald Marron, the Tax Policy Center's director.
 

Last year I read Stephen Ambrose’s book about the Lewis and Clark expedition. One striking thing I noticed about it was that 200 years ago in the early 1800s, the federal government regarded promoting commerce as one of their primary functions. Now their primary mission seems to be impeding commerce as much as possible.

Regards,
Wayne A. Pflughaupt




 
Guess that depends on your POV.

I look at it as reigning the robber barons in.

Oh and impeding business is hogwash. Fact is that the country was in a depression and God himself probably couldn't have done a better job.

Look at the top seven CEOs who hate Obama and their company's profits doubled during Obama's first four year term.

http://www.huffingtonpost.com/2012/...b&src=sp&comm_ref=false#sb=3943885,b=facebook
 
Did you see Obama's press conference today?

Everytime this guy opens his mouth the markets go down.
 
Did you see Obama's press conference today?

Everytime this guy opens his mouth the markets go down.

DJIA was at 8000 when he came into office.

Markets were down because of European unrest and Israeli military action.
 
DJIA was at 8000 when he came into office.

Markets were down because of European unrest and Israeli military action.

Especially the latter. Where it ends, nobody knows. Egypt, Syria, Israel, Iran.....it's a tinderbox. Nothing more Syria wants to draw Israel into its civil war.
 
Here's the compromise...Ordinary income to 39% for above 250K...a 3% increase and dividends/cap-gains from 15% to 25% along with commensurate spending cuts. That is doable, imo
 
Guess that depends on your POV.

I look at it as reigning the robber barons in.

Oh and impeding business is hogwash. Fact is that the country was in a depression and God himself probably couldn't have done a better job.

Look at the top seven CEOs who hate Obama and their company's profits doubled during Obama's first four year term.

http://www.huffingtonpost.com/2012/...b&src=sp&comm_ref=false#sb=3943885,b=facebook

stop huffing the pipe!!! by the way, your lyra atlas cart isn't a middle class cart either...I would say closer to the evil 1% of rich ass carts. Love the audiophile analogy and hypocrisy...;)
 
The markets gained 81% in Obama's first term. He's not responsible for that, but he's not responsible for the current downturn either. And uncertainty over the looming fiscal cliff is only partially responsible.

We're not supposed to go over that cliff. It is steep, deep and jagged at the bottom by design, to force Congress to act. We'll see if they can act like anything but petulant children incapable of crafting a compromise to save us from falling back into deep recession. I still have hope. The electorate seems to get what they don't. Maybe they'll look down the road to the next election cycle and decide they might need to have something to show for their time in Washington besides driving straight into a disaster.

Tim
 
-- If you guys fall into the ravine ('fiscal cliff'), we (Canada) will follow you right down to the bottom. :b

I'm not sure if we'll be able to remain on top; I truly doubt it; reality doesn't take into account all the under the table deals, and corporate corruptions. There are too many illegal and sophisticated organizations, like the mafia, etc., who are controlling (without regulations from our governments) to make sure that we all fall, eventually. ...And it seems that we are now at that threshold of the "World Fiscal Doom".

I think.
 
Last edited:
A comment directed to all parties involved...

The American psyche is not geared toward doing the necessary. Rather, it is geared toward taking the most convenient path.

Whatever happens, don't expect a meaningful solution. The fun part is that you can blame anyone you want and still be at least partially correct.
 
A comment directed to all parties involved...

The American psyche is not geared toward doing the necessary. Rather, it is geared toward taking the most convenient path.

Whatever happens, don't expect a meaningful solution. The fun part is that you can blame anyone you want and still be at least partially correct.

I disagree. It's about not dealing with things until they're a crisis. :)
 
Knee-jerk reactions, when folks' heads are forced from the sand, are somewhat of a specialty.

Lee

Our lawmakers do like to exercise that specialty when it comes to certain things, small things.

A recent example is NYC's 32 Oz. drink limit. Everyone loves that joke, except maybe some guy who wants the one dollar sweet tea from McDonalds. Now, he has to pay more than double by buying two 16 Oz. ones. That was a lot of hoopla just to screw over guys like him, wasn't it?

Probably a better example is seen on the National level, and that is the purchase limit for Pseudoephedrine. I suppose it never occurred to anyone that they might take the money used to manage that program for ferreting out the Meth cookers who are abusing the drug. Well, that might be asking too much. So it goes.

And, then there are not so small ones.

Speaking of knee-jerk reactions, where do you get the equivalent of a strip search before you board an airplane? Beijing, Tel Aviv, Moscow? No, that would be here.

Wanna fix a big financial mess?

Nah, let's just tinker around the edges a bit.
 

Guess that depends on your POV.

I look at it as reigning the robber barons in.

Oh and impeding business is hogwash. Fact is that the country was in a depression and God himself probably couldn't have done a better job.

Look at the top seven CEOs who hate Obama and their company's profits doubled during Obama's first four year term.

http://www.huffingtonpost.com/2012/...b&src=sp&comm_ref=false#sb=3943885,b=facebook
Seven examples isn’t exactly an indication of universal prosperity. In any economy there will be some who do better than others.

What “robber barons?” They got rich because people willingly gave them money in exchange for whatever goods and services they were selling – they didn’t force anyone to do that.

Despite your envy, I doubt you’ve been willing to give up your cell phone, stop drinking soft drinks, shopping at hardware stores or have canceled your electrical service and started reading by candle light – to name a few on Huff’s silly list. The fact that you’re participating on this Forum proves you’ve given a lot of money to Steve Jobs or Bill Gates. Basically, unless you’re living in a tent and riding a donkey to work, you're one of the people helping to make all these guys rich.

Regards,
Wayne A. Pflughaupt
 
Our lawmakers do like to exercise that specialty when it comes to certain things, small things.

A recent example is NYC's 32 Oz. drink limit. Everyone loves that joke, except maybe some guy who wants the one dollar sweet tea from McDonalds. Now, he has to pay more than double by buying two 16 Oz. ones. That was a lot of hoopla just to screw over guys like him, wasn't it?

Probably a better example is seen on the National level, and that is the purchase limit for Pseudoephedrine. I suppose it never occurred to anyone that they might take the money used to manage that program for ferreting out the Meth cookers who are abusing the drug. Well, that might be asking too much. So it goes.

And, then there are not so small ones.

Speaking of knee-jerk reactions, where do you get the equivalent of a strip search before you board an airplane? Beijing, Tel Aviv, Moscow? No, that would be here.

Wanna fix a big financial mess?

Nah, let's just tinker around the edges a bit.

Part of the issue is cultural though. Unlike in the USA, in most places government is not seen as the enemy. For example, although I do see your point about the sodas (although I have not problem with the ban), the Pseudoephedrine limitation and airport security are just common sense policy to me (by the way, have you actually tried boarding a plane in Tel Aviv - not fun).

The problem here is a lot of people somehow want to assert their inalienable right to drive motorcycles without helmets and scream bloody murder about government overreach when they are not allowed to. Then let's say this freedom loving motor cyclist shows up at the emergency room with head trauma from an accident. Turns out he exercised his civil right not to carry insurance (he is one of those guys throwing a hissy fit over the individual mandate). Instead of being the man of principle and graciously declining care, he instead elects "the Government (i.e. taxpayers)" to pick up the tab. Of course, even if he does carry insurance, he is still >10x the insurance risk of anyone else, and expects the general public to financially underwrite his lifestyle choices.

Peculiar.....

By the same token. You can whine all day long about airport security, but next time a guy takes down a plane you're probably first in line to lay the blame at the feet of Government failure to provide adequate secutiry. I just don't get it...

The way the same mentality played out in financial services, is Wall street is screaming bloody murder about regulation, and asserts the right to cook up trillions worth of unregulated derivatives. Then when the shithouse goes up in flames, they expect the Government to bail them out. I say the real problem in the USA is not welfare moms. It is the "we are entitled to our freedom, but we'll socialize the cost if things blow up" mentality.

Just throwing in some examples. My point is what is common sense policy in most other places, somehow ticks off a lot of people here, because of an inate aversion against "governement". Little of topic though. Back to fiscal cliff...
 
Pretty easy to avoid the short term cliff - Republicans have to honor the will of the American people and agree to raise taxes on the top 2%.

Obama won the election and the majority of voters rejected Romney's "gift" of a 20% across the board tax decrease.
 

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