Dec 4, 201208:56 AMSmall Business, Big Ideas
with Jean Willard
What’s all this talk about the fiscal cliff?
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The election is behind us, and we are now looking ahead to numerous issues that will need to be addressed. Two of the greatest that are in the news are the “fiscal cliff” and the changes that will be required under the Affordable Care Act. Both will take work and wisdom by our leaders in Washington to find compromise in a troubled era.
First, let’s take a look at what is meant by the fiscal cliff. This reference is to the expiration of tax rates enacted in 2001, the expiration of more than 150 tax provisions, and a tax increase in the billions. Obviously, what this means to you and me is that we will potentially pay quite a bit more when we file our return in the future.
Political speculators have noted that there are a number of things that could occur when we hit that Dec. 31 deadline:
- No compromises are made and we fall over the cliff. This is a distinct possibility based on what we have seen in the last few years. If this happens, no new tax bill is voted on before the end of the year and the tax provisions expire, tax rates increase, and many of us will be looking at more expensive tax bills.
- A compromise deal is made prior to the end of the year. In most cases, this is what both sides want. Many Americans are wishing for compromise by the two parties. The likelihood of this happening in such a short period of time is fairly remote because the two parties are so far apart in their ideas of how best to strike a balance that takes into account tax revenue, entitlement programs, budget deficits, and economic needs. A month’s deadline is pretty short for accomplishing this task.
- Stall tactics are put in place. This is one of the ways our congressional leaders have put off making the tough decisions in the past. When they have been up against a deadline with serious ramifications, they pass an extension bill that allows the current tax code to continue for six months, a year, or longer. This gives them an extended time in which to meet to iron out a reasonable compromise.
- A multistage strategy. This would involve a deal to be put in place that reflects some spending cuts and some revenue increases to help Wall Street gain some momentum. But this is similar to kicking a stone down the road. The problem hasn’t gone away and hard decisions still have to be made in a fairly short time. But this means that both parties haven’t met their end of the deal and hard work remains.