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On Bryce’s Mind

By Staff | Dec 28, 2012

Even before the events that unfolded in Newtown, Conn., one of the biggest issues was, and still is, a little something called the “fiscal cliff”. (And it’s not exactly little either, by the way.)

This is an issue because it won’t just affect our country, it will affect us personally, too.

According to a fact sheet about the fiscal cliff on ourfinancialfuture.com, if President Barack Obama, Speaker of the House John Boehner, Senate Majority Leader Harry Reid, and the whole of Congress fail to act, then a number of things will happen on January 1, 2013. There will be several hikes on personal income, dividends and capital gains, and estate taxes. There will also be an automatic $1.2 trillion in budget cuts (they’ve been called “sequestration” cuts in the media), which will be split between defense and non-defense spending, although the fact sheet doesn’t specify which parts exactly will be cut. These cuts and hikes will cause the unemployment rate to drop down to 9.2% or more by the end of 2013, and a 1.3% contraction of the gross domestic product (GDP) for six months. In other words, it would be so bad for our country we’d be in another economic downturn and the Federal Reserve wouldn’t be able to help pull us out of it.

There is an incentive to act. If Congress were to pursue the right course of action before the end of the year 2012, then the fact sheet says that the Congressional Budget Office estimates that the economy would grow by over 4% by 2013, and more than two million jobs would be created and/or saved.

Where are they in solving this problem? All sides are aware that there are three issues that need to be addressed/fixed if we’re going to get out of debt. The first is that reforms are needed to both the tax code and entitlement spending. The second is that they may need to, and this is starting to sound like deja vu here, raise the debt ceiling (the legal limit the government can borrow, money-wise) again. (And as you may, or may not, remember, there was a battle over that in 2011 too. Because of the partisan brinkmanship, the US earned its first credit downgrade, and the stock market was affected as well.) The third is that a budget deal of at least $4 trillion over 10 years in debt reduction needs to be accepted in both houses by both parties.

According to CNN.com, Republicans have refused to accept Obama’s latest proposal, saying it wasn’t balanced and didn’t have the entitlement reforms and spending cuts they’re seeking. On Tuesday Boehner released a plan that Obama says “defies logic”. His plan would leave the sequestration cuts intact, and raise tax rates on those whose income is above $1 million while keeping the tax rates the same for everyone else. Some Democrats have been saying there is no way Boehner’s plan would pass and that even bringing it up was a waste of time, while some Republicans have basically been saying “What are you guys complaining about? Raising taxes on millionaires and billionaires and the like is what you wanted.”

I may have said this before, but I think this may be another eleventh hour type of thing, and that is not what this country needs. All parties involved need to act, and act sooner. Otherwise, come January 1, 2013 it may not be a happy new year.

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