Is the Fiscal Cliff really a bad thing?

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   brblogposted 12 years ago

   Is the Fiscal Cliff really a bad thing?
   
   I read somewhere that the fiscal cliff is really a fiscal hill and that even if we let all of the Bush era tax cuts expire and had all of the budget cuts of the sequestration, there would still be a 450 billion dollar deficit next year. What is the solution?

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   JThomp42posted 12 years ago

   They say It would cause a drop in GNP. Would it? Maybe it would force congressional oversight committees to do some actual over sighting. Maybe it would require cabinet secretaries to actually manage rather than just set policies. We did OK with Clinton tax rates. No one likes more taxes, but we did fine.

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      brblogposted 12 years agoin reply to this

      Agree, nobody really seems to know what is going to happen . . .

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   LandmarkWealthposted 12 years ago

   Yes and No.  This is a certain fiscal drag.  Meaning money leaving the economy and for less productive use. About 80% of the "cliff" is taxation.  The rest is spending. This doesn't cover all the new "Obamacare" tax increases.   The reality is that the areas of increase directly to the average american are not dramatic, but yet enough to impact consumption collectively in a large way.  The higher end earners will bare a larger brunt of this on paper, but the reality is they won't pay much of an increase anyway because there are an infinite number of ways to defer money or alter economic activity.  The world will not come to an end as a result of this. It may however drive an already borderline recessionary economy that is limping along on two broken legs into a recession.  I happen to believe that is a foregone conclussion with or without the fiscal cliff at this point. Hopefully I am wrong on that one.
    
   From a spending perspective, the cuts to spending in the short term are somewhat impactful but grossly overstated by politicians.  However, since the Federal Gov't is incapable of efficiency, the beurocrats will make sure that the cuts directly impact the services that are most visible to the public rather than cut waste and fraud.   This is their way of insuring that the public doesn't push for real reform, by simply angerng them. The real problem is that nobody is willing to address the most serious topic with any degree of sincerity.  The entitlement programs.  They are so far out of control and unsustainable, that is is mathamatically impossible to pay for them with increased taxes.  Even if you assume that each tax increase was a dollar for dollar increase to revenue, (Which never happens)  There aren't even close to enough "Rich People" to scratch the surface of the problem.  So in all likelihood we will see another shorter term fix that kicks the can further down the road to prevent the elected officials from having to tell their current constituents that they have over promised them and can't pay for it.  Let's just let the next generation worry about it.
   
   I wouldn't lose alot of short term sleep over this one unless you're in a job where your employment is fragile and directly tied to things like retail spendning. That might present a problem  But I would tell you the same as I tell my younger clients if you're are below 50.  Don't plan your retirement around what the gov't will provide for you.  You're bound to be dissapointed.

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      brblogposted 12 years agoin reply to this

      Thanks for the answer - you have obviously put some thought into this  . . .

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      LandmarkWealthposted 12 years agoin reply to this

      I have to, I manage money for a living.

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   SassySue1963posted 12 years ago

   I've seen both views. Honestly, this is one of those things that depend entirely on your personal situation. If you are lucky enough to still have a decent full time job, it might deter some of your spending on non-necessities, but you would probably be fine. Obviously, if you are wealthy you'll take a hit, but be fine. However, if you are among the millions of Americans who are currently underemployed (and not being counted in that lovely unemployed number) and living on the edge or just above the poverty line, it will be enough of a hit to drop you below the poverty line. It even goes beyond that however, as it will also gut the military to the point where we would be hard pressed to defend ourselves if necessary.

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      brblogposted 12 years agoin reply to this

      Thanks SassySue - I agree, a person's current financial situation will make a difference if we go over the "cliff" - but will it cause another resession?

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   Goody5posted 12 years ago

   This is something new that's come along, and I guess we'll all know if it's good or bad after New Years.

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      brblogposted 12 years agoin reply to this

      Yes, things will get interesting . . .

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