You’d have to be hiding under a rock to not hear about the “Fiscal Cliff” looming over our economy as 2012 comes to a close. But is it real, or simply scare tactics? Can it be stopped? And most importantly, how will it affect your business and your personal finances?
The term “Fiscal Cliff” refers to the $110 billion in automatic spending cuts and $440 billion in tax increases scheduled to take effect on January 1, 2013. The nasty effects of this economic double-whammy have the potential to send us free falling into another recession.
According to the non-partisan Congressional Budget Office, the impending fiscal policy changes that the “cliff” is built upon are described below. Without congressional action, these changes will take effect:
Business owners are recognizing the connection between the Fiscal Cliff and their very survival in what have already been tough times. Nearly two-thirds of small businesses believe that the Fiscal Cliff will have a significant negative impact on their business, according to a survey done by the U.S. Chamber of Commerce.
So what are some of the potential ramifications if we “go over the cliff”? For individuals, the most urgent issue is taxes:
A failure to extend the Bush tax cuts would not only increase taxes on every single taxpayer in the country, but it would also require millions of households who are not currently paying taxes to once again pay a federal income tax.
For those in the top tax brackets, repealing the Bush tax cuts would push the effective marginal tax rate above 50% (when combined with state and Medicare taxes and when certain deductions and credits are eliminated over time.)
Small businesses and entrepreneurs are especially sensitive to increases in marginal tax rates. These increases would make it difficult for small employers to hire new employees, potentially hindering growth and expansion. Add this to the impact of new taxes and fees imposed by health care reform, and we have a highly uncertain climate for business in this country.
With the November election looming, Congress and the executive branch seem to be stalled in a high-stakes game of chicken. Each side is waiting for the other to give in first, and the American people are helpless on the sidelines. Without action by Congress and the President (whoever that is next January) the slate of tax increases and spending cuts will take place with far-reaching implications for businesses and our personal finances.
This is the topic of our October 30th HNI University event, Beyond the Cliff: Financial Planning With An Uncertain Future. This is your chance to hear from the heavy-hitters of the financial world as to where they see the market heading!
We are thrilled to be bringing in Dr. Quincy Krosby, the Chief Market Strategist for Prudential Annuities and one of the most highly-regarded economists in the country. At this event, Dr. Krosby will offer her perspective on market conditions and the economy, including the business impact of the fiscal cliff and the relationship between geopolitical events and the domestic financial outlook.
Mark Poker, partner at Michael Best & Fredrick and Chair of its Wealth Planning Services Practice Group, will follow Krosby’s high-level analysis by interpreting what this means for business owners and high net worth individuals when planning their personal finances, managing their estates, protecting their assets, and preparing for succession planning.