The Fiscal Cliff: Top 10 Facts You Need to Know Vol. 2

It is all over the news media. The looming fiscal cliff sounds like the next doomsday.
Here’s what you need to know.

1. What is the fiscal cliff? In 2001 and 2003 two pieces of legislation were passed by Bush Junior’s White House reducing tax rates for personal earnings, corporate income and investor income. Bush’s tax cuts were set to expire December 31, 2010, to avoid the effect of the Byrd Rule. The Bush Tax cuts were extended by the Obama administration to December 31, 2012, as part of deal with Congressional Republicans to increase the federal debt ceiling – that is the amount of money the country can legally borrow — by $2.3 trillion.

2. If December 31, 2012, passes without a deal the country will go over the fiscal cliff.


3. If we go over the fiscal cliff personal tax rates for every wage earner will increase. On a percentage basis it hits poorest Americans hardest. On a total dollar basis it hits richest Americans hardest. The “middle class” gets a walk. According to ComScore, 44 percent of Heavy’s guys earn over $100,000 a year (you’re getting shellacked) and the average Heavy guy makes $80,894 per year — the fiscal cliff means $3,0543 less in your wallet each year. Here’s what it means for you:

4. If we go over the fiscal cliff corporations pay more taxes. You may not think that affects you, but the likely result is more American jobs being sent overseas where corporate tax rates are far lower. Here’s what it looks like:

5. Investors also take a beating from the expiration of the Bush Tax Cuts. The result (see below) will likely be more investment in risky assets and less jobs.

Companies that distribute corporate profits as dividends will become less popular, possibly resulting in asset bubbles such as the 2001 Dotcom and the 2005 Real Estate bubbles. This will make it more expensive for you to buy your dream home or that apartment you have had your eye on and will result in higher interest rates as the Federal Reserve increases rates to reduce risk taking and inflation. Small businesses account for the overwhelming majority of job creation — they’ll have 15 percent less to hire new workers with. Hallelujah — stagflation. “Hello, it’s Jimmy Carter on the line. He wants his administration back.”

6. The president claims a mandate from the people (with 52 percent of the vote) to increase taxes on the wealthy to pay for reducing the deficit, but he wants to keep spending at exactly the same level. He defines as rich people those making over $200,000 per year and couples making over $250,000 per year.

7. Congressional Republicans led by the weeping Boehner claim a mandate with a majority of the House of Representatives (looking thinner and thinner every day) to hold the line on increasing taxes for the wealthy, but they are open to reducing the amount of deductions any American can take, which is effectively an increase in taxes for wealthy Americans.

8. The Payroll tax holiday is over. Everybody will pay 2 percent more out of their paycheck to the Big O.

9. If we go over the fiscal cliff, federal tax revenue in 2013 will increase by $500 billion, paying down a whopping 3.1 percent of our $16.2 Trillion Federal Deficit, while federal spending will remain flat. Here’s where the $500 billion comes from:

10. The non-partisan Congressional Budget Office (CBO) projects a contraction in the first half of 2013 of 1 percent of GDP if we go over the fiscal cliff – yes, playa, that’s another recession…