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Falling Off the Fiscal Cliff

by: DocJess

Sat Nov 10, 2012 at 06:33:02 AM EST

Come 1 January, the Bush tax cuts and the payroll tax cut are set to expire for everyone. In addition, there is something called "sequestration" which will lead to automatic cuts the same day. In certain ways, this is very bad for the overall economy, because it will decrease the amount of money going into regular people's pockets, and thus the amount of dollars they have to spend. Since 70% of our economy comes from consumer spending, people will contract the amount they spend on non-essentials. Unless they're rich, in which case, it won't make an appreciable difference on a day-to-day basis.

In another way, this isn't terrible in the long run, because there will be some initial pain, but it will lead to additional monies flowing into Federal government coffers, allowing for a decrease to the deficit, and potentially more money available to hire people for infrastructure programs and other worthwhile government spending which have an economic multiplier effect of a minimum of 2.5. But initially, the pain, especially to those making $20,000 - $200,000/year will certainly be there.

The House, where money is allocated and where tax bills begin, is controlled by the Republicans, and they are playing a game of chicken. They could accept that the Bush tax cuts remain for everyone making under $250,000/year and sunset for all making more than that, and even cut the payroll tax cut from 2% to 1%. This hurts less, and still is helpful to the economy. But they, in the mouthpiece of John Boehner, have said no. Our president, however, has said that he's willing to let everything expire if the House GOP is unwilling to deal. Shades of Newt and Bubba the Big Dog back in 1995-1996. 

There are a number of things you can do, based on what you want to see happen. First, you can contact your House member. Yeah, I hear you, the GOP is in charge, so what does it matter? First off, if your House member was re-elected, he/she pays attention to constituents and for these members, this means both the 112th and 113th Congresses. Remember that we've won back a number of seats - and they're not done counting. When all is said and done, we'll likely only be 16 - 18 seats away from a majority which is quite a change. This means that Republicans representing purple districts will need to listen so that the 113th is not their last rodeo. If you don't have your Congressman/Congresswoman's phone number on speed dial, click here for contact info.

The second thing you can do is to arm yourself with facts about where the Federal budget monies actually go, and what the options are for increasing and decreasing spending. Later today, I'll have a post up where you can play an interactive game to determine what priorities YOU have, and see how the different proposals affect the deficit. We won the last election on facts and boots on the ground. This is no time to change!

DocJess :: Falling Off the Fiscal Cliff

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I say (0.00 / 0)
Next week when they meet the president should open with:

1) Here are 2 starting points, the Bowles/Simpson commissions plan and the plan that Boehner and I put together, choose one and get to work.

2) You already have a bill that would extend the tax cut for the majority of Americans, pass it now (what he said during his press briefing the other day).

3) You have one week to get a plan or path together and then we will have an open televised discussion on it like we did for the Affordable Care Act.

4) Now, go back to your building and get to work, I want to see no other piece of legislation worked on or discussed until you get this done.

I don't think it would be bad for nothing to be done by January 1st. Steve on the Cycle explained it pretty well. In fact, I think all of the Congress politicians would love to be able to go out to their disticts as they campaign next time and say, "See, I voted you a tax cut". Sounds better than "I helped extend the Bush Era Tax Cut that didn't do anything that the Right has been saying that Tax Cuts do for the economy". And the second part to the fiscal cliff, the automatic cuts, don't really take affect January 1st. They are things cut from the budget and programs going forward and don't start kicking in for several months or more. So Congress would have time to work on those if they chose to kick the can.

The biggest impact that will be caused by the "fiscal cliff" is in the financial markets. The USA credit will be downgraded again, people will take money out of the market (a good buying oppertunity), and cause tension in a fragil global market. That is why Bernake termed it a fiscal cliff.

It's a problem that could be corrected sooner than later, but if there is legislation to avert the cliff, I don't see it being passed until the end of December. It's all about political posturing to show how big and strong you are, not buckling down and doing what is right for America.

Last thought....... Congress has a chance to improve their image, and the Republicans have a chance to quickly put behind them their devisiveness and bad image that they have earned for themselves over the past couple years with working hard, quick, and doing the right thing over the next couple weeks. If they don't, well, it won't be pretty for the Republicans in the House in 2014..........

AMT (0.00 / 0)
The one thing that MUST be done immediately is an alternative minimum tax patch.  There are a lot of people hit by Sandy that will be hit if the AMT isn't extended.  Unlike most of the other tax law changes, this one impacts 2012 income taxes.  Those folks could be seeing expected refunds morphing into balance due returns.  The negative swing for a typical impacted taxpayer would be $3500.

Re: AMT (0.00 / 0)
The AMT sucks, but won't these people have large deductible losses?  Would the AMT still kick in?

[ Parent ]
AMT complications (0.00 / 0)
Even for professional tax preparers, the AMT is a headache to learn about.  Under the alternative minimum tax, the whole point is to disallow large deductions as the original intent was to make sure that the rich paid at least some "minimum" tax.  Since marginal rates for the exceptionally rich are higher than the AMT rates, there are times when the regular taxes for those individuals are higher than the AMT.  If on the other hand you have a school teacher and police officer in California or New Jersey with two kids making $100,000 the fact that the AMT exemption amount was never tied to inflation will mean that if this patch isn't extended they may owe the government several thousands of dollars for 2012 - meaning the will have this obligation due before 4/15/2013.  The IRS has said that if Congress doesn't fix this before tax season starts it could delay refunds for a large segment of the population for two months if they need to reprogram their computers later.  AMT must be addressed now.

[ Parent ]
Re: AMT complications (0.00 / 0)
I agree that AMT needs to be dealt with because there are all sorts of issues with its implementation. However, normally when there is a disaster the scope of Sandy, people in the affected areas get automatic extensions and sometimes targeted exemptions. For example, its very difficult to do one's taxes if every scrap of paper, every receipt, every everything was washed away. I assume that there will be something on 1 January on the IRS web site to that effect. At least, I hope so - it's much worse than makes the national news.  

[ Parent ]
More on the AMT (0.00 / 0)
"Nearly half of U.S. taxpayers would be unable to file their 2012 taxes - or receive their refunds - until at least late March if Congress fails to enact legislation by the end of this year to restrain the alternative minimum tax, the head of the Internal Revenue Service said Tuesday."


[ Parent ]




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