(SXXW28G5BWN3) The powers that be are still trying to work out how they can forestall the fiscal cliff but everyone should be prepared for the consequences.
The Congress and President Obama are wondering how they can ward off the impending fiscal cliff, in a matter of days the tax cuts that were implemented by Bush will come to an end and spending will be slashed as the year comes to an end, no one knows what this round of cuts will bring.
J.D. Foster a senior fellow at the Heritage Foundation feels that the proposed changes will affect everyone, income tax rates will rise, payroll tax will shoot up and capital gains and dividend taxes will be higher. The proposed changes are going to have an impact on child tax credit too; so many families are going to be badly hit.
Taxation experts feel that the proposed tax changes could be delayed if the powers that be do not come to an agreement in the next month. Under normal circumstances tax filing starts at the beginning of the year but as things stand the IRS and tax-prep companies cannot complete tax forms.
This has an impact on employers who may need to make adjustments to payroll taxes when the proposed 2013 tax changes are implemented. In short this could mean that tax preparers will struggle to be ready in time. The government will find that their revenue is delayed and taxpayers may find that refunds are paid out far later.
COLUMBUS GROVE, OH – AUGUST 25: Republican vice presidential candidate U.S. Rep. Paul Ryan (R-WI) speaks to supporters on August 25, 2012 in Columbus Grove, Ohio. Ryan and presumptive Republican presidential nominee, former Massachusetts Governor Mitt Romney, are campaigning together leading up to the Republican National Convention beginning August 27 in Tampa, Florida. (Image credit: Getty Images via @daylife)
The Debt Ceiling Deal
On Sunday September 9th 2012, presidential nominee Mitt Romney denounced the debt ceiling deal that helped to avert an overwhelming government debt default in the US. This despite the fact that one of the deals supporters is his current running mate Paul Ryan.
Mitt Romney called the deal between the White House and the congressional Republicans “a mistake”. He went on to say that the deal would cut our defense budget badly.
Lawmakers agreed to the deal at the 11 hour back in August 2011. The agreement was for $1 trillion in spending cuts over the next 10 years. This followed by the promise to impose another 1.2 trillion to deficits. Paul Ryan backed last year’s deal while head of the House of Representatives Budget Committee.
Romney stated that he thought the deal was a mistake on the part of the White House, and a mistake on the part of the Republicans to go along with it.
Paul Ryan said on CBS recently that he supported the deal because they needed to find common ground with President Obama and the Democrats. But that Republicans had proposed ways of cutting back wasteful Washington spending.
Mitt Romney told NBC that the White House’s sequestration plan of $1.2 trillion would severely cut our defense budget. Unless automatic spending cuts are implemented by year’s end, beginning Jan 2nd $1.2 trillion over ten years would come out of our defense budgets, not affecting 2011 taxes.
With reputations damaged after payroll tax cut squabbles, Republicans in congress fight to change topics by emphasizing job creation. Pushing legislation that would bring jobs to the suffering economy, the GOP contends that bills promoting energy and transportation services, as well as lowering business tax and promoting capital, will reinvigorate the weak job market.
On the other hand, Democrats fight to retain control by forcing the Republican vote on needed programs paid for by tax hikes on the highest wage earners, in an election year nonetheless.
Both legislative positions emphasize political strategy drawn from the fight over payroll. The battle came to a close Friday evening after Congress utilized bipartisan compromise to deliver President Obama a bill totaling 143 billion in revenue. The package is intended to keep jobless benefits for those without work, stop cuts in Medicare reimbursement, and extends a 2 percent tax cut for payroll.
Before rescinding their demands that payroll tax cuts be paid for by lowering government spending, Democrats had succeeded in painting the Republicans as opposing middle class tax brakes for over 160 million people. The GOP seeks to redirect voters to Obama’s failures on the economy, taking attention off the party’s dismal showing in an election year.
As Republicans fight to preserve jobs and lower 2012 taxes, Dems seek to extend unemployment benefits and medicare provisions that many Americans depend on. With Republican measures in danger, there is little likelihood Republican energy bills will pass the Senate let alone get Obama’s signature. However, Republicans hope to make the best of the situation by showing they are in favor of job creation.
Many people are confused about the recent debt deal and how it will affect them. The details of the deal raise a lot of questions and offer few answers. Federal spending will face huge cuts over the next 10 years and about one third of all cuts will come from defense and security.
One of the bills main feature is the establishment of a committee whose aim is to find a further $1.5 trillion in cuts. There are no guidelines as to where these funding cuts will be made and some commentators expect to see significant reductions in Social Security and increased taxation. However if this committee fails to come up with a comprehensive spending reduction plan then a series of automatic cuts will come into being. These cuts will hit Medicare, Medicaid, and military spending the heaviest.
There are a few things that savers and investors can do in order to protect themselves in these uncertain times. Investors should investigate how dependent the companies they hold shares in are on government contracts. These contracts will surely dry up in the coming years.
Anyone close to retirement should hold off on stopping work in order to defer their Social Security retirement plan. This will add 8% to your benefits, which is a lot more than you’ll get by putting that money in the bank.
If you are not already doing so you should do your own tax. You’ll save money by doing 2011 taxes yourself instead of hiring a professional. Once you have done your own tax for one year, you will be able to continue to make this saving for many years to come.
Will Republicans ever give us some breathing room on 2011 taxes?
The White House is desperately trying to persuade liberals that the debt ceiling deal is getting a horrible reputation under false pretenses. This is quite understandable because there are always two sides to a coin, so to speak. As a matter of fact, upon closer inspection of this deal, there may be some favorable attributes associated with it.
In general, there is a commission of twelve “Super Congress” members – a total of 3 from each respective chamber and party. The liberals are addicted to criticizing their purpose to seal the $1.5 trillion second phase of cuts by Thanksgiving, which was bound to force some mandatory increases of revenue. Even though the Bush tax cuts are now out of the picture, a bounty of corporate welfare programs, subsidies and other loopholes are currently available. It’s definitely not easy to imagine a minimum of one Republican voting to keep corporate jet funding and then slash $500 billion from our country’s defense budget, despite the lack of offset revenues. It all comes down to this question: Are the Republicans more fearful of the joint chiefs or Grover Norquist? If the Democrats were betting, then their money would be on the joint chiefs.
Let’s assume the debt ceiling deal is approved today: in that case, the joint House/Senate committee has to recommend a brand new set of deficit reduction steps, which will provide the perfect venue for Democrats to seek after a more “balanced” approach. This translates into revenue increases and spending cuts. Because of the deal’s structure, if Congress refuses to accept its blueprint or the committee deadlocks, then automatic cuts will be triggered across the board – including a Defense spending reduction. This will probably force the Pentagon-friendly Republicans to take demands for revenue adjustments from the Democrats a bit more seriously.
However, I wouldn’t fall for this just yet. As usual, the primary conflict concerns the Tea Party, with its stubborn anti-anything-having-remotely-to-do-with-tax-increases orthodoxy. This notion is shared by countless Republican House members, animating the GOP’s base, including its most influential commentators. Speaker John Boehner had these members in mind while backing out of the major bargain discussions with President Obama. This just goes to show that even the slightest revenue increases amidst substantial spending and entitlement cuts would prove unacceptable to the GOP conference. These also happened to be the most difficult (or in some cases impossible) ones to win over as he pedaled his own second debt ceiling proposal last week.
In general, it’s important to remember that as far as these Republicans are concerned, defense spending isn’t nearly as sacred to them as it has been to GOP leaders, historically. Last month for example, Mark Meckler, national leader of the Tea Party Patriots, said to Politico:
“Everything is on the table. I have yet to hear anyone say, ‘We can’t tackle defense spending,’ or any other topic. …Any tea partier who says something else lacks honor.”
In the same article, Georgia Representative Paul Broun, possibly the most influential Tea Party advocate of Congress, suggested he wouldn’t be opposed to defense cuts, arguing that the USA “cannot be a protector of the whole world. We cannot do that any longer. We don’t have the money to do it anyway.” Incidentally, Republican Broun declined to vote with Boehner and the GOP regarding last week’s debt ceiling. Therefore, it seems that Broun wouldn’t object to avoiding any type of tax increase if the price involved a cut in Pentagon spending.
I’m still not sure how prevalent Broun’s view is among his GOP supporters. However, if a significant number of Republicans swing this way, it would be difficult to imagine the revenues changing under the deficit reduction committee. If pushing for the acceptance of a tax increase plan, Boehner would still be alienating dozens of believers that already have a suspicious eye on him.
Now, this doesn’t necessarily mean that there aren’t Republicans who think that the Defense budget is a hefty matter. Buck McKeon, California’s Armed Services Committee chairman, has been working all year to safeguard the military from any budget cuts. But McKeon, who has been in the House for 2 decades, is not the one that Republican Boehner should be worried about: it’s the Tea Party purists that require attention.
It’s also important to recall that another comparable commission was created under President Ronald Reagan during the Cold War with similar policies. If Congress ignored it or the panel came to a deadlock, the Defense budget took a severe beating. Yet, even back in those times when a strong national defense was most likely the focal point of settlement for all Republicans, both Reagan and the GOP decided to sign off on a more “balanced” plan, complete with Defense reductions.
If the Republicans gave in on Defense spending back then, it’s tough to imagine that they won’t do it again today, especially if the alternative is to pick a fight with the unwavering anti-tax Tea Party zealots. Therefore, no matter what the White House says, I doubt that this new deficit reduction committee will accomplish what every other plan of action has failed to do thus far. As far as increased revenues are concerned, the best bet lies towards the end of 2012, which marks the expiration of the Bush tax cuts. Also, this depends upon whether or not the Democrats want to push a rate hike by doing nothing at all.