You don't have to follow the pundits...until we actually have a slowdown, the only thing you'll be doing by worrying endlessly is giving yourself more indigestion, writes MoneyShow's Howard R. Gold, also of The Independent Agenda.
Last Friday afternoon, while I was looking for a column idea, I had CNBC on in the background. And every single guest was talking about the “fiscal cliff.”
Not just talking about it; worrying about it...in the same anxious tones many pundits fretted about, say, Europe, several months ago. Before Hurricane Sandy brought a grim dose of reality many of us did have to worry about, the fiscal cliff had become Wall Street’s obsession du jour.
For the past few weeks, stocks have slipped from their mid-September highs, as fears about the fiscal cliff replaced anticipation about the Federal Reserve’s next round of monetary easing in the minds of investors and traders.
For those of you who have spent the last few months vacationing on Mars, the fiscal cliff is a tax and spending-cut time bomb set to go off on January 1, 2013, mostly because of the cowardice and procrastination of the United States Congress.
On that date, all the Bush tax cuts are set to expire. The payroll tax cut President Obama negotiated with Congress also will disappear, as will the partial expensing of investments and extended unemployment benefits. A tax increase to help pay for the Affordable Care Act will kick in, and so will automatic spending cuts mandated by Congress in last year’s deal to raise the debt ceiling.
Altogether, there are about $400 billion in tax increases and $200 billion in spending cuts waiting to hit the economy like a wrecking ball when the confetti rains down upon us on New Year's.
Marginal tax rates will revert to Clinton-era levels, with the top rate at 39.6%—even higher when you add new taxes to pay for health-care reform. Capital gains taxes will go back to 20% from 15%, and dividends will be taxed as ordinary income. The estate tax will shoot up to 55% on estates over $1 million, so please try not to drop dead next year.
But lots of people worry the economy may die if this $600 billion anvil falls on its head. I’ve seen estimates of potential GDP declines as high as 5%.
The nonpartisan Congressional Budget Office said if we go over the cliff, we would have “economic conditions in 2013 that will probably be considered a recession," perhaps driving unemployment to 9.1% in next year’s fourth quarter.
The National Association of Manufacturers does them one better: It says the cliff could cost 6 million jobs and boost unemployment to 11% in 2014.
NEXT: Consumers and Businesses Split on the Cliff