You’ve probably heard about this “fiscal cliff” America is supposed to go off soon. 
While this newly-coined term is all over the news, you may still be wondering what exactly it means — and what exactly it means for you.
What Is the Fiscal Cliff?
Federal chairman and neologist-in-chief Ben Bernake first used the term back in February to describe the combined effect of 1) the expiration of Bush-era tax cuts, and 2) spending cuts mandated by the Budget Control Act of 2011, both of which go into effect when we ring in 2013. “There’s going to be a missive fiscal cliff of large spending cuts and tax increases” in 2013, he warned.
What Does the Fiscal Cliff Mean for Me?
Both sides agree that the 98 percent of Americans making less than $250,000 a year should avoid a tax hike. The Congressional Budget Office estimated that budget cuts and tax increases will lead to a recession in 2013; domestic production will likely decrease, leading to increased unemployment and general hysteria. President Obama continues to insist that only the wealthiest 2 percent should pay higher taxes.
Forbes reports that the average American could expect a tax hike of about $3,500 in 2013 if nothing changes from the current plan. Businessweek has compiled a list of tools you can use to calculate how your tax bill will increase if the legislature changes nothing. Creditcards.com has a simple calculator that can tell what kind of a tax increase you could expect, based on income and exemptions. Based on the calculator, a married couple filing jointly with two children and an income of $100,000 could expect a tax increase of $5,000. With possible tax increases looming, consumer spending is already slightly down this quarter — so don’t hold your breath on unemployment going down — or on extended jobless benefits sticking around.
What Are We Doing to Fix It?
Arguing, mostly. It seems that the financial situation will not be pretty whether lawmakers let things play out as planned or cancel some tax increases and budget cuts. According to a recent Post-Pew poll for Nov. 29 – Dec. 2, 2012, 53 percent of Americans think Republicans will be mostly to blame for failing to hammer out a deal, while at least 27 percent would primarily blame President Obama. Of people polled 49 percent don’t believe an agreement will even be reached in time. According to the Pew poll, Republicans — 69 percent of them — predict that a deal won’t be reached, where as 55 percent of Democrats believe there will.
Reasonable solution or not, we’ll just have to see how this one plays out. In the meantime, keep on with your balanced budget and savings plan — and don’t necessarily plan for a bigger tax refund in 2014.
