The next 2 months will be consumed with talk in the media about "the Fiscal Cliff." But what is the Fiscal Cliff, and what does it mean for you? Those are the issues explained in this article.
The Fiscal Cliff generally refers to the effects of the Budget Control Act put in place during budget talks last year and the expiration of the Bush Tax Cuts. It was a response to the Republicans (and rating agencies) concern over the deficit and debt. In exchange for the Republicans agreeing to raise the debt ceiling, both sides agreed to bunch of mandatory cuts and tax reversions if they couldn't come up with a budget agreement for 2013 by January 1st.
The Fiscal Cliff generally refers to: 1.2 trillion dollars in government spending cuts over the next 10 years; hundreds of billions of dollars worth of personal income tax, alternative minimum tax, payroll tax increases; implementation of taxes associated with the Affordable Care Act; and expiration of unemployment benefits.
The cuts would be across a variety of discretionary and non-discretionary programs, including defense spending. The cuts would amount to about $55 billion in cuts to projected defense spending and $55 billion to discretionary programs each year, over the next ten years. This would allow for increases to spending going forward, but the increases would be lower than the previous ten years. The cuts would not affect some core spending programs such as Social Security or Veterans' Benefits.
While this appeases demands for lowering the United States' deficit, there are certain problems associated with it. Besides the fact that your taxes are likely to rise, the cuts to spending and your decreased spending power will likely result in a recession and increased unemployment (according to the Congressional Budget Office). So there is likely to be pain associated with this over the next 18-36 months. On the flip side, lowering the deficit will likely improve the health of the United States finances into the future. All in all, it is a double edged sword. Unfortunately, there is no easy way out of the deficit/debt situation that we have created over the past 30 years. The best solution would probably be for the two parties to come to a more moderate agreement with less spending cuts and less tax increases than would result through the Fiscal Cliff.
The Fiscal Cliff generally refers to the effects of the Budget Control Act put in place during budget talks last year and the expiration of the Bush Tax Cuts. It was a response to the Republicans (and rating agencies) concern over the deficit and debt. In exchange for the Republicans agreeing to raise the debt ceiling, both sides agreed to bunch of mandatory cuts and tax reversions if they couldn't come up with a budget agreement for 2013 by January 1st.
The Fiscal Cliff generally refers to: 1.2 trillion dollars in government spending cuts over the next 10 years; hundreds of billions of dollars worth of personal income tax, alternative minimum tax, payroll tax increases; implementation of taxes associated with the Affordable Care Act; and expiration of unemployment benefits.
The cuts would be across a variety of discretionary and non-discretionary programs, including defense spending. The cuts would amount to about $55 billion in cuts to projected defense spending and $55 billion to discretionary programs each year, over the next ten years. This would allow for increases to spending going forward, but the increases would be lower than the previous ten years. The cuts would not affect some core spending programs such as Social Security or Veterans' Benefits.
While this appeases demands for lowering the United States' deficit, there are certain problems associated with it. Besides the fact that your taxes are likely to rise, the cuts to spending and your decreased spending power will likely result in a recession and increased unemployment (according to the Congressional Budget Office). So there is likely to be pain associated with this over the next 18-36 months. On the flip side, lowering the deficit will likely improve the health of the United States finances into the future. All in all, it is a double edged sword. Unfortunately, there is no easy way out of the deficit/debt situation that we have created over the past 30 years. The best solution would probably be for the two parties to come to a more moderate agreement with less spending cuts and less tax increases than would result through the Fiscal Cliff.
About the Author:
Nick Wroblewski is a Chicago estate planning attorney. If you want to find out more about your how to protect your wealth or talk about other estate planning topics, visit his website. Contact Nick for a free initial consultation.
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