The Fiscal Cliff (Merged Topics)

[Wild Colonial Boy]

OK so as a non-US citizen who has been trying to understand the US electoral system forever and the implications of President Obama's return to office for another four year term, can anyone out there please explain the 'fiscal cliff' that the various financial and news pundits on channes like CNN and CNBC are talking about.

Is this an issue of US treasury expenditure outstripping revenue; slow economic growth and a threat of a deeper depression or something else?

[TexDaddy]

This sums it up fairly well.

http://money.cnn.com/2012/08/06/news/economy/fiscal-cliff/index.htm?iid=EL

Basically, it is all of the automatic spending cuts and tax increases that go into effect 01/01/13 if Congress can't bungle their way out of it.

[atherts]

Yes, all of those things and worse because the country and individual are spending money they don't have.
The more money that is "created" for stimulus reasons, the more the dollar is devalued. Eventually it will be replaced by something else as the currency standard which means the USA won't be buying as much, importing as much, traveling as much and spending on bailing out and assisting other countries. Big impacts here and abroad.

Is this an issue of US treasury expenditure outstripping revenue; slow economic growth and a threat of a deeper depression or something else?

[Alpha Mike]

The term fiscal cliff was started because financial collapse sounds too negative.  It's a marketing thing. 

[TexDaddy]

The term fiscal cliff was started because financial collapse sounds too negative.  It's a marketing thing.

Yeah, running off a cliff is way cooler than the roof falling on you. 

[ID_Joker]

Yeah, running off a cliff is way cooler than the roof falling on you. 

It definitely is.  When the roof falls, you're immediately a pancake.

When you go off a cliff, you get to style the air on the way down.  THEN you're a pancake.  Much better!

[NWPilgrim]

This sums it up fairly well.

http://money.cnn.com/2012/08/06/news/economy/fiscal-cliff/index.htm?iid=EL

Basically, it is all of the automatic spending cuts and tax increased that go into effect 01/01/13 if Congress can't bungle their way out of it.

And we hit the repeatedly raised debt ceiling yet again at the end of the year.  While the temporary "Bush tax cuts" were  trumpeted as just for the rich, we are about to see when  they expire that virtually every taxPAYER will be affected.  It won't affect the taxes we pay for 2012, but our January paychecks will  stay having more withheld in anticipation of taxes due for 2013 tax returns.

[Wild Colonial Boy]

This sums it up fairly well.

http://money.cnn.com/2012/08/06/news/economy/fiscal-cliff/index.htm?iid=EL

Basically, it is all of the automatic spending cuts and tax increased that go into effect 01/01/13 if Congress can't bungle their way out of it.

Thanks guys, and great link Texdaddy....a good read.

It may surprise many Americans, but those proposed "income tax increases' still equate to a much lower income tax rate than if you lived in many other advance western nations.... imagine paying a tax rate of up to 45-50% of your income!

[endurance]

It may surprise many Americans, but those proposed "income tax increases' still equate to a much lower income tax rate than if you lived in many other advance western nations.... imagine paying a tax rate of up to 45-50% of your income!

Agreed, but we have other layers of taxes, like state income taxes, state, county and city property taxes, state, county and city sales tax, so just looking at the federal income tax rates don't really give you the full picture.  I have no doubt that many Europeans are paying more in taxes, but the difference may not be as much as you think it is at first glance.

The good news is that both sides have some power in this fight; the end of the Bush tax cuts vs. spending cuts, so there's actually a pretty good chance there will be some compromise.  That said, the Bush tax cuts were never funded in the first place and it's 1/3rd-1/2 of the deficit gone if it was repealed tomorrow.  Not that there wouldn't be consequences, but it has to be on the table in the big picture (just like medicare and social security should be on the table, but never really are despite being the lion's share of the long-term deficit).

[Wild Colonial Boy]

I hope for the sake of the United States that your politicians have good sense and most importantly the moral strength to navigate through this mess and can reinvigorate the economy.

I wish your great nation every success for the coming four years...

[cmxterra]

That said, the Bush tax cuts were never funded in the first place

I hate when people use that term. It's like it was the governments money to begin with so they have to "fund" it to give us back our own money. 

[Skunkeye]

I hope for the sake of the United States that your politicians have good sense and most importantly the moral strength to navigate through this mess and can reinvigorate the economy.

Crap.  We're screwed.

Man, I hope there's another solution besides relying on the intelligence and morals of politicians...

[Shaunypoo]

After reading the article, I don't know that the cliff is such a huge deal.  Would it suck?  Yeah.  But frankly at this point there are the cuts that R's want and the taxes that D's want.  I think most people would be more outraged by the taxes than the cuts.  And maybe, just maybe, this is the kind of kick in the pants people need to realize that government is not here to help them in the long run.  I have been against having exemptions and itemized deductions for awhile.  To me it is akin to the government subsidizing industries.  They are using tax breaks to modify behavior.  Just make it simple.  Why can't we just have a flat tax?

[Roundabouts]

They are using tax breaks to modify behavior.  Just make it simple.  Why can't we just have a flat tax?

I have been asking that question for 23 yrs.  That would be right after I got my first "big" raise with an even bigger lesson.  Got my pay check and it was much smaller than the ones before.  Went  to the boss to question it.  Most obviously he made a mistake.   He laughed and said welcome to the next tax bracket.  So much for working hard to get a raise in pay. 

25 yrs ago we got a refund.  A huge refund.  Must been a mistake since the refund was more than what we even paid in.  I was dumbfounded.  How can you possibly get more back than you paid in?  It was a lot more.   I tried to send it back.  Nope it was "my money"  "I was entitled to it"  Course after a few years passed and we no longer got that huge return that I had been accustomed to getting,  I was a bit upset. " Where is my money!?"    Wait "MY" money?  WTH.  That was my brief encounter with entitlement.  It's just so messed up. 

[endurance]

I hate when people use that term. It's like it was the governments money to begin with so they have to "fund" it to give us back our own money.

Fair enough, but he reduced the income of the government by cutting taxes to the tune of about $200-300 billion a year at the same time he went to war in two separate countries costing over a trillion dollars in additional expenditures.  That's not sound fiscal policy.  That was my only point.  Had he cut the taxes and not gone to war, given the surplus he inherited in 1999-2000, it might have been very close to a wash, but the department of defense budget is still more than twice what it was in 2000, despite being out of one war and 'wrapping up' the other one.

[Adam B.]

The term fiscal cliff was started because financial collapse sounds too negative.  It's a marketing thing.

As a marketing professional (aka. professional liar) — I fully concur. I could not have said that better myself.

However I may have tried to get everyone to believe the "Financial Collapse" is actually a "Opportunity For Independence" (from having money).

Just like the dirtbag corporation I work for told us that "Losing our Health Benefits" was ACTUALLY an "Opportunity for YOU to have MORE SAY in your health care expenditures!"

[bigbear]

Thanks guys, and great link Texdaddy....a good read.

It may surprise many Americans, but those proposed "income tax increases' still equate to a much lower income tax rate than if you lived in many other advance western nations.... imagine paying a tax rate of up to 45-50% of your income!

Our tax rates are lower because we don't have as big of a public retirement pension.  Which, as I understand it, is a huge underlying reason for the woes in Europe.  Of course, we have our own issues... for instance, I think we can withdraw our troops from Germany at this point.  Even if we still wanted to keep them in the Army, their money would be spent in local US communities.

[Shaunypoo]

Our tax rates are lower because we don't have as big of a public retirement pension.  Which, as I understand it, is a huge underlying reason for the woes in Europe.  Of course, we have our own issues... for instance, I think we can withdraw our troops from Germany at this point.  Even if we still wanted to keep them in the Army, their money would be spent in local US communities.

We could, but then we would lose a strategic asset.  I am of the mindset that a strong military is good for our safety and our economy.

[MTUCache]

We could, but then we would lose a strategic asset.  I am of the mindset that a strong military is good for our safety and our economy.

Erm... trying not to derail this topic, but I really cant help myself. Strategic asset? How valuable? In what strategy?
I get the idea of 'sunk costs' and 'having a good offense is the best defence', I do... but occupying and contributing to the rebuilding of a country for six decades after fighting for six years seems like a bad trade just for a base and a friendly wink when you "need" it, especially in today's technologically advanced world where an entire regiment could be anywhere in the world (with all necessary equipment) in a matter of hours rather than days or weeks...

Just sayin'... some 'assets' are more trouble than they are worth. Especially when they just pies people off and make more work for you in a self-fulfilling prophecy.

As for fiscal cliff... yeah, it will hurt for all the middle class tax payers, but there's at least a chance of waking up the sheeple when they realize what the bill really looks like for the luxury they've been enjoying for the last years. Not much of a chance, but still.

[rogersorders]

... for instance, I think we can withdraw our troops from Germany at this point.  Even if we still wanted to keep them in the Army, their money would be spent in local US communities.

I am one of those troops in Germany and couldn't agree more. I have been in meetings where the topic of moving back to the states comes up. The biggest hurdle is trying to get congress to decide where to move the units back to. Each rep wants the returning units and their money to come their state.

[endurance]

I am one of those troops in Germany and couldn't agree more. I have been in meetings where the topic of moving back to the states comes up. The biggest hurdle is trying to get congress to decide where to move the units back to. Each rep wants the returning units and their money to come their state.

Yep, the answer would definitely be having the pentagon, not congress, decide which bases should be closed and which ones increased.

[joeinwv]

I think we will have the opportunity to see what 45-50% taxes look like. It's coming.

Frankly, they have no choice but to raise the debt ceiling about $3 trillion. If we hit sequestration, and the auto $1.5 trillion or so in cuts, our economy will straight flop. I don't think, at this point, our economy can take that hit.

[Shaunypoo]

The other bad side of the fiscal cliff is raising the rates on investments, which will probably help to tank the stock market.

And by strategic asset, I mean that it is a major supply point for other operations, not that we need to keep an eye on the Germans.

[Adam B.]

I think the time is coming soon when the world finally wakes up to realize we don't owe the "parasite class" half of our labor anymore. I mean GOD only wants 10%

[Wild Colonial Boy]

Glad to see the the post is stearing back onto topic.

I think the time is coming soon when the world finally wakes up to realize we don't owe the "parasite class" half of our labor anymore. I mean GOD only wants 10%

Hey Adam....by parasite class do you mean the wealthy who use the capitalist system we inherited or the underpriviledged who look to the system we built for handouts???

Just asking!

[jason389]

Jack has said that it didn't really matter who won - Romney or Obama. I Agree somewhat; I think the main difference is the time table for when things will get much worse. Had Romney won, I think we would have had a greater chance at averting the fiscal cliff (at least the one looming in January). That said, averting the fiscal cliff would certainly be "kicking the can down the road" to use the recently popular expression.

I have come to believe that our entire economy, in its present form, is a bubble that exists on the life support that is the federal reserve. Non-stop quantitative easing (printing money) will eventually catch up with us (already is, go to the grocery store). The stock market is artificially inflated due to an inflated money supply. Just like homes have been, college tuition, gas, groceries, cars, etc.

Ultimately, it's all rearranging the deck chairs on the Titanic. Here is why, from one of my facebook posts:

What is the fiscal cliff, you ask? Let me make it simple: If we reach the fiscal cliff, come January 1, a series of changes will take place that  will combine tax increases and spending cuts that will reduce our net annual spending by $668 billion dollars a year. Sounds like a lot, doesn't it? To put that into perspective, it is only 4% of our total deficit, which is $16 trillion. Not 40%, 4%. FOUR PERCENT.

That means that the steps necessary to reduce only 4% of our deficit are so severe that they are believed to be enough to send us back into deep recession, a depression, or a financial collapse. What does that say about our deficit? It says that IT IS MATHEMATICALLY IMPOSSIBLE THAT IT WILL EVER BE PAID OFF! (as Jack has stated many times).

It is really like arguing over a thunderstorm when there is a 100 foot high wall of water (tidal wave) coming towards you.

Enjoy your weekend.

[rogersorders]

Jack has said that it didn't really matter who won - Romney or Obama. I Agree somewhat; I think the main difference is the time table for when things will get much worse. Had Romney won, I think we would have had a greater chance at averting the fiscal cliff (at least the one looming in January). That said, averting the fiscal cliff would certainly be "kicking the can down the road" to use the recently popular expression.

Totally agree. I figured with Romney in office silver, ammo and guns would be cheaper and we'd have a little bit longer to prepare.

I think at this point the cure (balanced budget, fiscal responsibility and cuts across the board) will send us over the edge and kill the economy.

I don't want to derail the topic but...

We're going over the edge and the government seems to be on a mission to enroll as many Americans in entitlement programs as possible. Would you enroll and take whatever Monopoly money they gave you in order to prep faster? I know most people on here wouldn't take a handout but as corrupt as the system is, why not take it and put it to good use.

Just a thought.

[chrisdfw]

Thanks guys, and great link Texdaddy....a good read.

It may surprise many Americans, but those proposed "income tax increases' still equate to a much lower income tax rate than if you lived in many other advance western nations.... imagine paying a tax rate of up to 45-50% of your income!

Its not the rate that matters on taxes, its how much you pay in total in proportion to your income. In other places the rate might be higher, but they might not face the same state, local, sales, property, social security, taxes and such.

Our top rate is 35% for federal income tax, add on to that medicare taxes of 2.9%, state and local income taxes of up to 12%, and then the fact that we then pay sales tax on everything we buy of 5-8% in many states, property taxes on what we own... and it gets us to the same place.
On top of that, we pay corporate income taxes which are built in the prices of the products we buy.... just part of the cost, but because "the evil corporations pay it" we don't seem to notice (many of us are as dumb as shit anyway)

[FrugalFannie]

Its not the rate that matters on taxes, its how much you pay in total in proportion to your income. In other places the rate might be higher, but they might not face the same state, local, sales, property, social security, taxes and such.

Our top rate is 35% for federal income tax, add on to that medicare taxes of 2.9%, state and local income taxes of up to 12%, and then the fact that we then pay sales tax on everything we buy of 5-8% in many states, property taxes on what we own... and it gets us to the same place.
On top of that, we pay corporate income taxes which are built in the prices of the products we buy.... just part of the cost, but because "the evil corporations pay it" we don't seem to notice (many of us are as dumb as shit anyway)

Medicare is paid half by the employer and half by the employee. I know as a small employer it also figures into how much I can pay an employee. You left out Social Security tax which is 12.4%, half paid by the employer and half paid by the employee. Medicare tax will go up next year for those making over $250,000 per year on their investment income.

If you make $50,000 per year you and your employer pay $1450 for medicare, another $6,200 for social security. All that before income taxes. I think most people could do a whole lot better with their money in their pockets than in the governments pockets.

[NWPilgrim]

Yes, when you add all the taxes we pay together it is a heavy burden.  The last time I figured our actual amounts versus gross income it was about 45%+.  I don't know how anyone can rightfully say that any person ought to pay half their income to the govt for any reason.

My bleeding heart liberal sister is about to get a wake up call.  Her husband is facing early forced retirement (not economy related, just the company and local situation) in March.  She said their income will be much less and they should be OK but health insurance cost is their biggest concern.  She said they plan to just get a cheaper catastrophic policy and pay out of pocket for routine care.  I said I don't think the new HealthCare act will allow that, that is the point to force everyone into buying the same level of insurance. "Oh no, that can't be right!"

Although my sister surely voted for Obama and every democrat possible, she as yet has no clue what effect the ObaamaCare law will have on her life let alone others.  Isn't that sad that after 2.5 yrs of it passing few really know what the impact will be?