The Fiscal Cliff: Is January 1st the Real “Doomsday” for America?

“Sooner or later, it will be America’s turn to fall out of favor with investors and to see its own interest rates rise. It is hard to know when that day will come, or precisely what pressures the country will face.

Let me only venture one forecast: We will not be ready.”

Simon Johnson, former chief economist at the International Monetary Fund

Americans are facing yet another government manufactured crisis, one that may be the push that takes us over the edge of what is being called “the fiscal cliff”. If Washington can’t create a solution in the next few days, there will be some serious repercussions; ones that will be dumped into the laps of already overworked, underemployed, and underpaid Americans.

Here is an idea of what we face if Washington’s maneuvering falls flat once again:

January 1st: The Bad, The Really Bad, and The Downright Ugly

The Bad:

The 2001, 2003, and 2009 tax cuts will expire, to the tune of $281 billion: These are the “Bush Tax Cuts”, which were extended again in 2010. These include tax reductions on individual income, capital gains, estates, gifts, and changes to things such as deductions, credits, etc., and have affected most Americans.  If these cuts are allowed to expire, the average annual tax burden per family could increase exponentially. According to the Tax Policy Center, this would affect 88 percent of U.S. taxpayers, with  taxes rising by an average of $3,500 per year; taxes would jump $2,400 on average for families with incomes of $50,000 to $75,000.

The Payroll “Holiday”: This cut was advantageous for many low income and middle class Americans, adding extra money to the family paycheck every week. It’s also set to expire, and add a tax burden of $700 more to each household. This amounts to a paycheck reduction of about $40 per week for someone making 50K a year. Add to this the increased IRS withholding that comes about due to the expiration of the Bush tax cuts, and paychecks will be shrinking even further. (source: Time magazine)

Expiration of Extended Unemployment benefits: Due to the horrible economy and lack of jobs,( despite the Obama administration’s blind naivete), unemployment benefits were extended to 93 weeks for some families, simply because the jobs weren’t there (and still aren’t). When allowed to expire, this will cut unemployment eligibility back to the traditional 26 weeks that we see in a booming economy, while millions will still be out of work.

The Really Bad:

The Alternative Minimum Tax Expansion: Some may disagree with me on this one, but this is the tax that makes sure that people who are “rich” aren’t paying “too little” in taxes.

While I agree in cases of people like Mitt Romney, who is basically scamming the system, there are wealthy folks out there who have worked very hard for their money and are taking a hit because we want to make sure that everyone plays nice and makes everything fair. Life is not fair. If Congress does not adjust the AMT for inflation, 27% more Americans will be coughing up extra taxes to make sure that everything is “peachy.”

Expiration of the Medicare “doc fix”: It’s bad enough that Medicare sucks; even worse that some people need it and can’t get it. If this expires, it’s going to be downright impossible for some people to get care because more doctors are going to refuse to take Medicare and Medicaid patients because they won’t be getting paid as much.

The Downright Ugly:

Obamacare begins with new tax impositions: Three of the five tax hikes will solidly hit the middle class, touching everything from capital gains and dividends to day care, services for special needs children, folks with “extraordinary” medical expenses, and so on…Over the next ten years, Obamacare will result in a new tax burden of $250 billion that falls on the shoulders of working Americans. What happened to “Obamacare” will make money? If it will generate so much revenue, why are we going to tax Americans to death (and I mean that literally) in the meantime?

On January 2nd, the sequester will kick in. The sequester is a huge cut in spending (which we need, however, we are not going about it the right way.) While social programs were supposedly exempt, Medicare and Medicaid payments will be reduced again starting in February, as well as payments for prescription drugs (which are already so outrageous that many elderly cannot afford them.) If we are going to continue to have social programs, we need to rework them, because we are cutting out the people who need it the most…the poor and the elderly, without a back up plan. It amazes me that people would have accused Ron Paul of wanting to hurt the old, the infirm, and the poor…a physician who wanted to foster the doctor-patient relationship and turn control of health care back to the free market….but would laud a president who claims to be an advocate for these folks but is enacting a plan that will be disastrous for a large percentage of those whom he purports to help.

What will the stock market look like on January 2nd? Boehner’s Plan B wasn’t even brought up (not that it would have passed anyway. Seems the Tea Party has become wise to the wolf in their ranks.) In the opinion of Alan Blinder, former Federal Reserve vice chair, we are about to plunge into another recession. He believes that confidence in the market is about to be shattered.

“Markets are putting a very low weight on the notion that we actually go over the cliff for more than three days,” Mr. Blinder said. “A delay beyond that “would really kick the chair out from under the markets’ current belief” and trigger a wider reaction among investors and then consumers.”

Is it time to hunker down or bug out? This is on the minds of many people who have been preparing for this kind of financial disaster.  The global mood toward the dollar is changing, with many countries stockpiling gold and demanding repatriation, grabbing the proverbial “torches and pitchforks”.

Will January 1st foretell the end of the dollar and America’s run as a financial empire?

 “We’re so far gone. We’re over the cliff. We cannot get enough people in Congress in the next 5 to 10 years who will do the wise things. We have to prepare for having already fallen off the fiscal cliff.”

Ron Paul


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