The Fiscal Cliff
“Fiscal cliff” is a metaphorical term used to describe what will happen if a proactive solution to our national debt crisis is not reached by the end of this year.
We are quickly approaching the fiscal cliff and yet it has gained the attention of very few people. FOX News’ Neil Cavuto took an in-depth look at what lies ahead in his Cost of Freedom special, “Countdown to Catastrophe” last Saturday morning. As a result I hope we now better understand the frightening consequences we face if our elected officials don’t do something quickly to avoid falling off the cliff.
Here’s what will happen if nothing is done: Federal income tax rates here in the U.S. will increase for all taxpayers- not just the wealthy – on January 1st. Capital gains and estate taxes will also increase, and the alternative minimum tax (AMT) will apply to several million more Americans. In addition the social security payroll tax holiday will expire resulting in an additional 2% tax increase. Add to it the fact that Obamacare taxes are scheduled to take effect in January 2013.
On the federal spending side of the fiscal cliff, as democrats and republicans agreed in the summer of 2011, are mandatory spending cuts including national defense amounting to $1.2 trillion over the next 10 years. Simply stated these cuts will amount to about one per cent of our economy a year. Doesn’t sound like a lot? It sure is when our GDP is growing at only 1.3% a year.
When coupled together these taxes and spending cuts point to an almost certain double dip recession.
Even before reaching the fiscal cliff our economic recovery has been painfully slow. By some indicators it appears we may be beginning to see some improvement. By many other indicators, we remain in dire straits.
Where are we especially still hurting? Jobs! I don’t care what the current administration is putting out there these days in the way of an unemployment number (currently 7.8%). I prefer to look at two numbers: underemployment which is 14.7%, and the labor force participation rate which is stuck at around 63%. Both of these numbers are abysmal.
Add to this our growing national debt of over $16 trillion or $208,000 per family of four, and lethargic GDP growth, which I already mentioned, at 1.3%
As this crisis looms, what is Washington doing to fix it? NOTHING! We can blame this all on Congress, but that’s only part of the problem. Sometimes it takes leadership to bring the parties together and get a deal done. We saw Ronald Reagan provide that type of leadership required to make things happen across party lines. More recently, we saw Bill Clinton do the same. Where is our current president?
Many of the pundits suggest that after the November elections another temporary solution will be agreed upon which will push the fiscal cliff off three to six months into the future. That’s unfortunate because it will only prolong our stymied economy. Businesses, large and small, will continue to postpone capital spending and delay hiring, and consumers will put off major purchasing decisions….uncertainty will prevail.
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