We Made it Through the Election – But Will We Survive the “Fiscal Cliff”?

Election season is finally over. Whatever your political leanings may be, most of us share a sense of relief that the campaigning is done.

Of course, as lawmakers head back to Washington DC, they must immediately address the “fiscal cliff” that our nation is currently plummeting towards. As we’ve discussed previously, the fiscal cliff refers to a package of government spending cuts and tax increases designed to reduce the deficit. Unfortunately, most economists predict that these policies will lead to a recession if a more gradual approach is not adopted. Here’s how the Associated Press explains the matter:

The so-called “fiscal cliff” is an economy-rattling combination of expiring Bush- and Obama-era tax cuts and major across-the-board spending cuts to the Pentagon and domestic programs.

The cliff is the punishment for previous failures of a bitterly divided Congress and White House to deal with the government’s spiraling debt or overhaul its unwieldy tax code. The Congressional Budget Office estimates that the austerity program would reduce the deficit by $503 billion through the end of next September – or approaching $700 billion for the entire calendar year. CBO says millions of jobs could be lost.

The fiscal cliff includes:

  • The expiration of Bush-era tax cuts on income, investments, married couples and families with children and inheritances. In addition, some 26 million additional face the alternative minimum tax next filing season, which would raise their taxes by an average of $3,700. Cost through September: $330 billion.
  • A $55 billion, 9 percent cut in the defense budget next year and another $55 billion in cuts to domestic programs, including a 2 percent cut to Medicare providers.
  • The expiration of unemployment benefits for the long-term jobless. Cost: $26 billion.
  • A sharp cut in reimbursements for doctors participating in Medicare. Cost: $11 billion.
  • The expiration of Obama’s temporary 2 percentage point cut in payroll taxes. Cost: $95 billion.
  • A variety of smaller taxes cuts for both businesses and individuals collectively known as tax “extenders.” They include a tax credit for research and development and a deduction for sales taxes in states that don’t have an income tax. Cost: about $65 billion.

Now, taking steps to reduce our deficit is clearly a good thing. But many economists question whether our currently weak economy could survive such a drastic shock. Possible consequences include a rise in unemployment, volatility on Wall Street, and even the possibility of a financial collapse similar to what we experienced in 2007 and 2008.

Most Americans are united in their hope that our politicians will work out an agreement and avoid these consequences. But given the dysfunction of the last several years, would you want to bet your financial future on it?

If you’d like to learn more about the implications of economic uncertainty on your portfolio, and if you’d like to learn how you can protect yourself and your future in these turbulent times, please get in touch with us today!

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by CelebritySites™.