'The Something to Do With Money Disaster Thing'

How will the Fiscal Cliff affect Woodbury? What is the Fiscal Cliff in understandable terms? What happens if the politicians cannot agree before the end of the year?

Woodbury Patch graciously accepted me as a volunteer to contribute to the Woodbury online community. Thank you, Woodbury Patch. 

However, I’m wondering if they will really want me back after I start my online comments talking about the “Fiscal Cliff.” 

I have lived in Woodbury for almost twenty years now.  My daughter started kindergarten and finished high school here in Woodbury.  We’ve been involved in music, athletics, academics and civic activities in Woodbury.  I am very proud of our community and want to do what I can to keep Woodbury growing healthy. 

On Monday Dec 31 the US Congress will try to come to an agreement to avoid the “fiscal cliff.”  And, lately as the year comes to a close, I have been wondering if it will affect people in Woodbury.

I almost always start comments to friends with something like: This is really bothering me!  Then my friends know that they have to lean in with their elbows on the coffee shop table because I’m on another roll.  Well, this is really bothering me.  I don’t think it’s really a coincidence that the fiscal cliff is pretty much happening at the same time as the end of the world proclaimed by the Mayan Calendar.  Think about it. “It’s the end of the world as we know it and I feel fine” [1] 

So what is the Fiscal Cliff? 

First of all, it really isn’t a cliff that we are all going to fall off in an instance. The effects that Federal Reserve Chairman Ben Bernanke described as a cliff will take place over time, mostly from the end of 2012 through 2013 and beyond.  I heard one commentator call it the “Fiscal Pothole” and another commentator call it a “Fiscal Slope.”   

And, it doesn’t necessarily mean that the financial world is coming to an end.  It does mean that as a country we have to work together to get our financial house in order. I’ve been calling this the “something to do with money disaster thing” thing.  If our elected officials cannot agree and the fiscal cliff- pothole- slope actually happens, what are the parts that are most likely to affect Woodbury residents? 

  •  The top tax rate will rise from 35 percent to
    39.6 percent - Yuck
  • The average American will pay an additional tax
    bill of $3,446 – double Yuck
  • The child tax credit will be cut in half and
    no longer be refundable – well, gol-ly
  • The estate tax will return to a $1 million
    exemption and a 55 percent top rate – maybe
    you should just spend it now?
  • Capital gains will be taxed at a top rate of
    20 percent and dividends will be taxed as ordinary income—don’t invest and you’ll be OK
  • Marriage penalties will increase and various
    tax benefits for education, retirement savings, and low-income individuals will disappear – oh dear

A few other affects to Woodbury could be:

  • Employee payroll taxes will increase from 4.2
    percent to 6.2 percent
  • Reduction in unemployment insurance
  • Reduction in Medicare payments to physicians
    and provider payments
  • Immediate cut to defense spending
  • Immediate cut to non-defense discretionary
    spending – this is to veterans, education and health and social services all of
    which impacts all of us

There are a few others but at this point I am really on the edge; and oh, in addition the debt ceiling will probably have to be increased again.

Look at it this way, say you have a $50,000 educational loan that has now come due, your Mom and Dad want to kick you out of the house since you don’t have a job.

You find a job that pays, oh maybe $35,000 a year. Your parents let you stay in the house but now, since you have a job they want you to pay rent of $200 a month and you must pay at least half of the $50,000 loan by the end of the year.  You have a really big problem going here, don’t you? Your taxes went up, your expenses went up, and your loan will probably be in default.  My now college age daughter said, so it’s like repo-ing the US? Great (said with long drawn out sarcasm)!

But why, oh why, did this happen? 

In the last couple of years our national elected leaders had real trouble agreeing on how to manage our finances. A bipartisan “super committee” was created to work on our finance plan and they couldn’t agree either. Think about it.  How do you and your spouse, partner or roommates handle money?  Do you have a perfectly formed financial plan where you have perfect agreement on how to get, keep and spend money?  Probably not. 

Money continues to be a large factor in divorce and in family disagreements. Paying bills is very stressful and there are often power struggles in a family over money. Our elected leaders basically have the same problem. We need a long-term financial plan, we need to reduce our debt, we need to live within our means and we have to do it in a way that doesn’t financially crush our society or those around the world. This is hard to do in our family finances let alone on a massive scale for the US budget. 

It seems our politicians do agree on this – doing nothing and letting all the tax increases and the spending decreases go through will be a very bad thing for the economy. It will set us back in to a deeper recession and the jobs forecasts will get worse.  It will significantly affect the American middle class and it will affect the world economy too.  They agree that we need to bring down our debt and reduce our spending but they are still struggling on how to do it. Politicians from different parties don’t agree whether to increase taxes or who the increases should go to. 

They disagree on how and where to cut spending. They disagree on whether, or if, the big social insurance programs such as Medicare (health insurance for the elderly), Medicaid (health insurance for very low income people and to people with disabilities) and Social Security (retirement program for the elderly) should be changed or benefits reduced.  Most of us are not experts in macroeconomics (I hated that class) but we do have people we have elected to work on this for us. 

Since we are not experts what do we want and how do we fix this?  We could do nothing and let it all happen. Nobody wants that.  Go on a very austere spending cutting plan – most people think that will be just as bad.  Bernanke has been quoted as saying:

“Although some combination of spending cuts and new revenue are desperately needed to put the country on a sustainable path, it is important to achieve sustainability over a longer period.” 

We do need a middle ground.  Some balanced combination of spending cuts and revenue increases over a long period of time that we stick to. Whatever the plan is it cannot happen all at once like a roller coaster coming to an abrupt halt.  Our policy makers should avoid the cliff and take a moderate road that is gradually phased in over time which will stabilize our economy instead.

One of my favorite quotes [2] of all time is from Winston Churchill and applies to this situation:

“The United States invariably does the right thing, after having exhausted every other alternative.” 

Let’s hope and project that our leaders understand what is best for Americans, and ultimately Woodbury, and do  the right thing.

I’d like to keep writing for the Woodbury Patch a couple of times a month.  Write in with some suggestions of what you would like to hear about next.

Thanks.  Kay


  • Between a Mountain of Debt and a Fiscal Cliff. The Committee for a Responsible Federal Budget July 16, 2012.
  • WonkBlog
  • Wikipedia

[1] REM

2] Winston Churchill  

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