(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.
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.
Warren Buffett has once again called for the Super Rich to be made to pay more taxes by Washington. Writing in an editorial piece for the New York Times Buffett declares that it is time the super rich played their part in the needed ‘shared sacrifice’ of our times and called for Congress to increase taxes on ‘millionaires and billionaires.’
In a passionate and persuasive editorial he points out that while most poor and middle class Americans are struggling, the mega-rich continue to enjoy incredible tax breaks. He notes that people like investment managers, who earn billions of dollars, are allowed to class their earnings as ‘carried interest’ which is taxed at a wonderful 15% rate of tax. In addition he notes that others get hold of stock index futures for around ten minutes and then have roughly 60% of their gains subject to tax at that same bargain 15%, as though they were long term investors.
Decrying the fact that Washington seems to be compelled to protect the superrich as if they were an endangered species, Buffett suggests instead that:
“I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get…
“… But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate…”
Some people have pointed out the hypocrisy of Buffett calling for these super rich tax increases when only a few weeks before he had been lecturing the President on the fact that he was scapegoating private jet companies and the private jet industry.
But on the whole, most people agree with him and when Warren Buffett thinks the rich should be paying more taxes, it is perhaps time to listen.
Alex is a freelance journalist and financial blogger. He loves to write about baseball and jazz but spends most of his days writing about mortgages, markets and umbrella companies .
Anatomy of a Debt Reduction Deal: Five Money Moves to Make Right Now
What’s next? If you have found yourself deeply confused about how a recent debt reduction deal will likely affect your wallet, you have plenty of company.
The small writing displayed upon the contract form often induces more questions than answers. Nearly all discretionary expenditures of the US Government are slated for drastic reduction during the next decade or so. Defense costs are an especially burdensome budgetary item that is overdue to be slashed dramatically. The legislative proposal currently pending before Congress would free up an estimated total of $917,000,000,000 USD in fiscal resources from federal coffers during the first ten years after its enactment. Approximately $350,000,000,000 of that figure falls within defense and national security budgetary categories.
A fact of perhaps even more import is the recent proposal drafted by a dozen-member Congressional committee that would entail identifying areas in which to affect an additional $1.5 trillion in budget cuts. That faction’s fiscal agenda is currently an open slate that portends to entail slicing Social Security funding and increased 2011 taxes. If the committee cannot specify a minimum of $1.2 trillion in total budgetary savings or its recommendations fail to garner sufficient Congressional approval, automatic cuts become effective as of December 23, 2011. This belt-tightening campaign looks to be pervasive and severe. Vital programs like the Armed Forces and Medicare would be affected in a major way, while Medicaid, Social Security, and a few other Federal programs might be spared.
It appears as though all problems have been aptly identified but remain unresolved. This does not mean, however, that individual savings and investment plans should be left by the wayside. Consumers must continue to implement protective measures to shield themselves from the federal government’s impending fiscal fallout. Following are some specific steps to take or immediately preclude right now:
– Employ defensive investment strategies for all private government contractors’ corporate stocks. American Assoc. of Individual Investors spokesman Charlie Rotblut recently advised stock investors whose holdings depend highly upon federal funding must maintain them most vigilantly. Private defense firms will probably lose revenue due to the trickle down effects of these budget cuts. This phenomenon will have universal impact across the board, however. State contracts will also lose out as recession-ravished state economies deteriorate further from diminished federal fund inflows.
Rotblut further observed that national infrastructure is especially vulnerable, due to it being much more difficult for states to complete the construction of roadways, bridges, and highways.
He went on to advise individual investors to thoroughly peruse 10k annual reports of various corporations to glean their true level of relative governmental project dependency.
– Do not be too uptight about bonds. Bonds are no longer as risky as they have historically been. This was the recent observation by Mayflower Capital spokesman Don Martin. Of course, conventional wisdom remains valid about long-term bond values being likely to decrease as interest rates take a hike. The debt deal under consideration is likely to delay the day of ultimate reckoning for several reasons, however. As Congress is honoring its foreign obligations, it reduces the probability that ratings will go down, thereby inches T-Bill rates upward. The pending bill’s proposed budgetary cuts will not take effect until at least 2013. Their specific terms, however, hold out what many commentators believe to be the nation’s brightest rays of hope for future fiscal horizons.
Mr. Martin went on to posit that the current US economic posture is stagnant and threatens to slip into recessionary status on a daily basis. Thus, lowered government stimuli due to American leader’s austere attitudes will mean dramatic falls in bond values and other discrete, short-term investments. While this calls for a cautious approach, it is hardly an occasion for endemic panic.