2013 Fiscal Cliff. Taxmageddon. Kicking the Budgetary Can Down the Road. Bipartisan Ineffectiveness. Whatever you want to call it, you’d have to living under a rock to have not heard about the big fiscal changes coming our way at the end of 2012.
Most commonly dubbed a “Fiscal Cliff,” it’s a compilation of many changes that will impact Americans in a tangible way in the new year.
Just as we emerged from a sticky presidential battle, the country has been thrown back into a position of taking sides. Tongues are wagging, fingers are pointing, and we are all holding on for dear life as this monetary snowball keeps growing bigger and bigger by the day.
Frankly, I am so weary from all of this. But I feel like I owe it to the purpose of my blog to write about the pending fiscal cliff issue.
What is a Fiscal Cliff? Changes Pending December 31st / Early January 2013
As part of the 2013 Fiscal Cliff, we’re looking at the expiration of Bush Tax Cuts, which originally came up for expiration at the end of 2010. They were then extended for two more years, until December 31, 2012.
The 2013 Fiscal Cliff also includes the expiration of a 2% Payroll Tax Cut originally slated for the 2011 calendar year that was then extended twice more. Valid through December 31, 2012, it’s in the headlines again as a measure to extend.
Grouped in with the fiscal cliff talks: unemployment extension issues.
Also included in the fiscal cliff roadshow are the automatic spending cuts slated to go into effect in January 2013. As part of the debt ceiling deal in 2011, a Congressional committee (the Joint Select Committee on Deficit Reduction) was created with the purpose of figuring out how to tackle the federal deficit to the tune of $1.5B in 10 years. If no solution could be found (it wasn’t), the solution would be forced in the form of automatic spending cuts effective in January 2013.
Who’s on this committee? For your information, the list of 6 members is published on the Senate website.
Is anyone really surprised that six whole people couldn’t solve the nation’s money problems? Seriously.
Why Are We Heading Toward a Fiscal Cliff at the End of 2012?
In our country’s current state, we have an imbalance of spending and revenues. Some believe it’s more of a spending problem; others believe it can be solved with more revenues (taxes). Either way, it’s a real problem. Something’s gotta give.
Nobody wants to do what’s uncomfortable, but the Taxes and Stuff realistic approach involves raising taxes, reforming entitlement programs, and cutting spending. Not one step, but a combination of all the above.
The Congressional Budget Office (CBO) put it more eloquently than I could in Choices for Deficit Reduction:
…it is possible to keep tax revenues at their historical average percentage of GDP—but only by making substantial cuts…in the large benefit programs that aid a broad group of people at some point in their lives. Alternatively, it is possible to keep the policies for those large benefit programs unchanged—but only by raising taxes substantially…for a broad segment of the population. Changes in other federal programs can affect the size of the changes needed in taxes or large benefit programs, but they cannot eliminate the basic trade-off between those two parts of the budget. Ultimately, significant deficit reduction is likely to require a combination of policies, many of which may stand in stark contrast to policies now in place.
If this is accurate (and I believe it is), we are all in for a rude awakening sooner or later. What will it take for everyone to get on board with some real changes?
What Will the U.S. Economic Landscape Look Like in 2013?
With time running out to address the end of 2012 / early 2013 fiscal cliff issue, it’s unclear what Congress will do. I’ve purposely stopped watching the news for a few days just so I can take a break from the Congressional circus highlighted in the news.
But I couldn’t help but look for an update on the political back and forth. Here’s what I found:
What will the economic and political landscape look like on January 2, 2013? 2014?
Luckily, people much smarter than me have already examined this issue. Here’s what the CBO predicts the future MIGHT hold:
In the meantime, let’s play a round of kick the can
Coming Soon: The Health Care Reform Debate of 2013/2014
Primer on Taxmageddon 2013 by Americans for Tax Reform
The End is Coming: January 1, 2013 by Peter Coy. businessweek.com
The U.S. Cruises Toward a 2013 Fiscal Cliff by Alan Blinder. The Wall Street Journal Online.