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December 5, 2012

The Fiscal Cliff 2012

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Written for: Communicado Magazine
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Another fiscal cliff; Didn’t we do this a few years ago? I guess to be fair, the actual issue was raising the debt ceiling – this go-‘round it’s reducing the budget in an effort to avoid raising the debt ceiling again and it’s three-fold: Taxes, spending and revenue.

The Budget Control Act of 2011 is what the legislative and executive branches agreed to when they raised the debt ceiling. It’s details take effect on January 1, 2013 which include spending cuts. The bulk of the hits will be in the form of taxes – the payroll tax ends, the minimum alternative tax kicks in and taxes related to Obamacare begin. Lots of tax implications…

I’ve heard it called a conundrum. That’s exactly what it is…

So, its bad enough that someone needs to figure out how to balance all of these deals our legislators have made, but, worse is the partisan behavior between Congress and the President and his cabinet. There’s even been discussion of letting the government go over the cliff to see what happens. Really? That’s just unreasonable thinking…

But, the people who are doing the negotiating are too deep into the issue. No one is stepping back and breaking it down to the most simple terms – Consumer confidence. This whole problem can be summed up starting at consumer confidence.

This is not a poker game where bluffing is an option. If consumers experience fear based on what they see as fiscal default, they pull back. If consumers are spending, our economy generates revenue. If the economy generates revenue, big business makes more money and in turn, feels confident to hire. If companies hire, consumers have jobs and are able to spend money, which, brings us back to consumer spending again. It’s like six degrees of Kevin Bacon – all roads lead back to consumer spending.

Another potential hit to consumer spending is a reduction in unemployment compensation. Same vicious circle – no job means no spending… no spending means smaller profits for the private sector which also means no new jobs… no new jobs from companies goes back to no spending again and on and on and on…

So, letting the government go over the fiscal cliff would be a short-sighted decision. Consumers aren’t privy to every detail of the budget, only whether its under control or not. The big picture. So if the big picture is a boat load of taxes, less unemployment time and money and no jobs – consumer’s are out.

And the discussion about entitlement programs should just be shut down. I think there has been less outrage because many Americans don’t realize that entitlement programs are social security, welfare, medicare/medicaid. Whether they need it or not; Whether they need to be overhauled or not, voters/consumers won’t be on board. They’d rather have other programs affected than the securities they expect from entitlements when they need them. Especially senior citizens….

I have a friend who’s a smart guy, but, like most voters, not immersed in politics and government. He only sees and hears the big picture then reacts. He recently said to me that he’s totally against President Obama because he’s a socialist and is the cause of his taxes going up and his insurance going up. Perfect example – he only hears, “OH NO! I’m going to have to pay more!” I explained to him that he shouldn’t panic because, I firmly believe there will be a deal before January 1, 2013. There’s just a lot of poker-style bluffing going on. What’s happening now is the same as what happens when you go in front of a judge in court. It’s an exercise in the installation of fear.

The judge and the prosecutor tell the defendants what the maximum sentence is to scare them into doing what they want when in fact, most first time offenders get some punishment no where near the maximum sentence. That’s what’s going on here – we’re being told the maximum sentence right now and when all is said and done, the final verdict will be no where near it.

So keep your cool. Wait it out. The powers-that-be know how detrimental going over the fiscal cliff would be to the psyche of the american people. We got past the first hurdle as voters… now we just need to get past the second hurdle as consumers.

Hold on tight… the next few weeks might be bumpy…