US heading for the Fiscal Cliff

The “Fiscal Cliff”.

More like the “Fiscal Slide”. January 1st, is not a dooms day but it ain’t good.

There is a trigger is US politics where changes occur in the way the US government is managed. The “cliff” is when the Budget Control Act of 2011 is scheduled to go into effect.

Among the changes, if there is no deal by the end of the year are:

  • A 2% tax increase for workers.
  • The end of certain tax breaks for businesses.
  • Shifts in the alternative minimum tax that would take a larger bite.
  • A rollback of the “Bush tax cuts” from 2001-2003.
  • The beginning of taxes related to President Obama’s health care law.
  • Deep spending cuts in over 1,000 government programs including defence, infrastructure and Medicare.

Republicans want to cut spending and avoid raising taxes, while Democrats are looking for a combination of spending cuts and tax increases. Don’t expect any complete deal between now and the end of the year. I’m betting more of a compromise.

Biggest problem is that the Democrats do not hold the majority in both houses. Had they have the majority, things would be different.

The Republicans have complained that the Democrats could of started the negotiations as long as a couple of years ago. I’m thinking that the Republicans weren’t in the mood for negotiations as they were trying to figure out who would lead them and then the elections.

The Democrats had suggested no tax increase for anyone with an income under $250,000. The Republicans don’t want an increase but it sounds like more in the $500,000 range. And they call that the middle class?

If no compromise, there will be major increases in taxes and cuts in programs. It also will mean a significant reduction in the deficit to a tune of about $550 billion.

If they cancel all of the tax increases and program cuts [unlikely], the deficit will continue to increase and could end up with problems that Europe has faced recently.

Even if nothing is done to fix the problem, while taxes will increase and cuts will occur, the changes won’t happen immediately. There will be a difference between January 1st and the end of June.

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About ebraiter
computer guy

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