The term refers to tax increases and government spending cuts of up to $500 billion, set
to roll in starting January 2013. Specifically, Bush-era tax rate reductions are set expire,
average worker take-home pay will most likely also be affected, and about 28 million
taxpayers in the middle to upper tax income bracket would have to pay an alternative
minimum tax.
In terms of government spending, $26 billion would be cut from the emergency
unemployment-compensation program, $11 billion would be cut from Medicare
payments to doctors, and a $65 billion cut across the board for most federal programs.
The expiration of the Bush tax cuts is just the beginning. When it is all said and done,
the expectation is that the average American household will be paying $2,000 to $3,000
more in taxes each year—leaving them with $2,000 to $3,000 less to spend in our
consumer driven economy.
Specifically, the fiscal cliff includes:
—The expiration of Bush-era tax cuts on income, investments, married couples and
families with children and inheritances.
—A $55 billion, 9 percent cut in defense spending next year and another $55 billion in
cuts to domestic programs, including a 2 percent cut to Medicare providers.
—The expiration of unemployment benefits for the long-term jobless and a sharp cut in
reimbursements for doctors participating in Medicare.
—The expiration of Obama’s temporary 2 percentage point cut in payroll taxes.
—The imposition of the alternative minimum tax on some 26 million households, which
would raise their taxes by an average of $3,700.—A variety of smaller taxes cuts for both businesses and individuals collectively known
as tax ‘‘extenders’’ in Washington-speak. They include a tax credit for research and
development and a deduction for sales taxes in states that don’t have an income tax.
Whether or not Washington comes to an agreement over the fiscal cliff issue, expect
greater uncertainty in the markets. As citizens of a global economy, the fiscal cliff does
have its ramifications, but so do other issues like the contraction of the Euro-zone and
slowing growth in China.
There is already a great deal of negative sentiment as witnessed by the large cash
positions in households and corporations, and the flight to safety in the U.S Treasury
markets. Many articles have suggested capturing capital gains this year in anticipation
of higher capital gains rates next year. There will most likely be increased volatility and
possible opportunities that the nervous sentiment and uncertainty will cause. Now is a
great time to take measure of your foundation goals. Food/Shelter, Emergency Fund,
Insurance coverage (life, health, auto, disability, etc.). As we have all witnessed from
the Super Storm Sandy, Sh*t can happen! That is one thing we can control,
coverage/protection for what we have and what we earn. We can’t stop the event from
happening, but if it does, have we protected what we worked so hard for.
Once you have your foundation goals are secured, then we move to lifetime goals.
Now we can be creative and add value. It may indeed make sense for you to take
capital gains this year at a lower rate; it may make sense to stay out of the markets until
more certainty is clear. We all have unique situations. This is where I can help! I can
help you re-evaluate your lifetime goals. Help you assess your assets and help you
make some decisions about what works best for you in your particular situation. Don’t
just do what the masses do. Be different, not just to be different, but because it is what
works best for your particular goals.
This is what I do! Let me help you by listening, and helping you understand what your
options are. Then you decide.
Ray A. Hawkins CFP ® ADPASM, AWMA®