What is this Fiscal Cliff Everyone is Talking About?

What is this Fiscal Cliff Everyone is Talking About?

by adrianfrank | on December 31, 2012

photo by hangoutnetworks.com

What is the fiscal cliff?

Remember the Roadrunner cartoons?  Wile E. Coyote chased the Roadrunner like mad and at the last minute the Roadrunner would jump out of the way and the coyote would go flying off the edge of a cliff.

photo by motherjones.com

Well that is like the fiscal cliff.  The Roadrunner (the government) has a set of laws called the Budget Control Act of 2011 which we will discuss in detail later.  The government can leave the Act alone and let it come in to effect on Jan. 1, 2013 or they can make adjustments or cancel it altogether.  No matter what course they take, the coyote (the American people) is going over the fiscal cliff in one way or another because most American families will see a tax increase under any scenario.

Here is a great educational explanation of the fiscal cliff from YouTube by the Wall Street Journal:

Even though this explanation is simplified and meant to be humorous, it’s important to keep in mind that the concept of “going over the fiscal cliff” has been created and hyped by the media.

The “fiscal cliff” suggests an immediate disaster, but even if a deal isn’t reached by December 31, it doesn’t mean that a recession and financial market crash has to occur. Any deal that is reached after Dec. 31 will be retroactive to Jan. 1, 2013.

Now back to the Budget Control Act – it is a set of laws that will go into effect after midnight on Dec 31/2012.  These laws include:

• The end of last year’s payroll tax cuts (this will be a 2% tax increase for workers)
• The end of certain business tax breaks
• Shifts in the alternative minimum tax
• Rollback of the “Bush tax cuts” from 2001-2003
• Beginning of the taxes related to Obama’s health care law

Along with these, the spending cuts from the debt ceiling agreement of 2011 will come into effect (see the next crisis at the end of the article).  This means more than a thousand government programs will automatically be cut including Medicare and defense.

The Democrats and Republicans have three choices and none are easy:

1. If they let the scheduled changes happen in 2013, the tax increases and spending cuts will negatively affect the economy and may cause a recession, but the deficit would be reduced.
2. They can cancel some or all of the planned tax increases and cuts to spending, but this would add to the deficit and the US might face the same kind of financial crisis we have seen across Europe or the nation’s debt would keep growing.
3. They could take a middle of the road approach and change the tax increases and spending cuts, but the threat is a less than optimal growth.

photo by willitsnews.com

The Next Crisis

The next crisis facing the United States will again be hitting the “debt ceiling”.  If you recall, the same thing happened in the summer of 2011 and really upset the stock markets.  This caused the spending cuts that are now making up a portion of the fiscal cliff.

VERY FEW people make as much fiscal COMMON SENSE as John Stossel and most of the people he has on his show, like Ron Paul in this case.  Enjoy this YouTube video by LibertyPen and FoxNews:

 

God bless you!

 

Adrian and Jocelyn Frank

CEO/Owners of Adrian Frank Consulting

eMail: adrianfrank@gmail.com, jocelyntranfrank@gmail.com

www.BeEmpoweredHere.com 

 

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