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Over the cliff - by - you go first!

Updated on November 30, 2012

Benefits of the fiscal cliff.

I am in favor of going over the fiscal cliff and here are two of my reasons.

The government spends too much money; it has too much debt; and irresponsible people running the show. Just like children, sometimes you have to force them to do things they find uncomfortable. You know that responsible citizens do not want their fellow humans to suffer but every time someone suggests we just stop increasing the money spent on programs designed to help those who are less fortunate than we are, we are accused of being mean people. We're only asking to stop the increases. We are not even suggesting "cuts."

When you are looking at your own budget, and you need to control costs, going with last year's budget is not such a difficult thing to do. But when the government looks at its budget, holding to last year's expenditures is considered mean.

Therefore, the absolutely only way the government will be forced into control expenditure is if they go over the fiscal cliff. We cannot accomplish this by voting. The congress had a 10 percent approval rating and by and large they were all re-elected. We need something like the fiscal cliff to force the government into action.

Now what does the income investor do in facing this cliff. First look at your savings. If most of the money you use to live on comes from investments, you should pay close attention. If most of your money comes from working, you should pay close attention. In other words, anybody with savings needs to have a strategy to deal with the fiscal cliff.

If you work, be prepared to take home less money for at least a while. Look at your expenses and keep 'em under control. Then be sure to fund your IRA and 401 K's, open a health savings account and fund it so you can save for the future while at the same time keeping your tax bill at a minimum. Look, even with the fiscal cliff being breached, you will still have the opportunity to fund tax advantaged accounts.

If you are done working or you don't rely on work for income, but your income comes not from retirement accounts, then you need to invest in municipal bonds that are tax free or in individual real estate where your income is not taxed because you get the depreciation pass through.

If your income comes from retirement accounts, the fiscal cliff could allow you to buy some good income instruments on sale. For instance, significant cuts to defense will probably cause stocks like Northrup Grumman (NOC), Raytheon (RTN), and Lockheed Martin (LMT) to go down. These companies pay between 3.33% and 4.9% in dividends. When you hold these stocks in qualified retirement plans, the dividends are not taxed. When you hold these kinds of companies in a ROTH IRA, the income builds up and when you need a distribution, you get it tax free.

Dividend companies will suffer, they say, because the fiscal cliff will change tax rates on dividends from 15% now to as high as 43%. Indeed, these stocks will sell off. However, in that action there is opportunity. Buy these dividend companies in your qualified retirement plan and you get a bargain.

So you see, here are two solid reasons; forced government spending restraint, and dividend companies on sale that make me say .... go over the fiscal cliff!

Very Truly Yours,

TheMoneyMadam

www.themoneymadam.com



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