A number of laws are set to expire or go into effect at the the new year. If no agreement is reached, the combined result will higher taxes.
If I had to pick one wonky catchphrase that has been used and abused during this election cycle it would be “fiscal cliff.” Over 60,000 news stories have featured the “fiscal cliff” in the past month alone. Many commentators who use this term don’t have a good understanding of what it actually means or why its important. It turns out that the fiscal cliff isn’t just something that sounds ominous; it is important and does impact small-business owners like us directly.
The Fiscal Cliff Explained
What is a Fiscal Cliff?
The fiscal cliff is a term coined by Federal Reserve Chairman Ben Bernanke in reference to a set of laws that will change in January 2013; some will expire and others will go into effect. The combined effect of these changes in law will have a significant impact on income taxes and on federal government spending. The overall goal is to increase tax revenues collected from consumers and business while also reducing government spending.
Conservatives are concerned about the fiscal cliff because it will cause hundreds of billions of dollars in new taxes. Liberals are concerned because it will lead to hundreds of billions of dollars in reduced government expenditures.
Economists and financial experts across the political spectrum are worried because the net impact will be a jarring and almost immediate reduction in economic growth. In other words the fiscal cliff will throw our economy into a recession by early- to mid-2013, increasing unemployment and making our current situation even worse. The goal of some of the laws included in the fiscal cliff is to reduce government deficits and this would be achieved, but at what price?
The Laws of the Fiscal Cliff
One of the main changes in law that comprise the fiscal cliff is the expiration of the “Bush” tax cuts. While they officially expired 2 years ago, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 extended them through the end of 2012. If they do expire, then starting in January:
