There are 2 main camps when it comes to economics and politics – some feel that people and businesses will go about their routine patterns of spending, saving, investing and hiring regardless of any “uncertainty” and another camp that feels all the uncertainty we’re constantly facing gives people and leaders pause, which constantly constrains behavior that may be beneficial for the economy (consumer spending, capital investment, expanding businesses re:hiring people, etc.). I’ll share how the fiscal cliff is impacting our finances below, but I’m curious what individuals are doing in the face of the following potential changes coming up within the next week or two. If the fiscal cliff comes to pass, this is what would happen:
- Â Tax rates going up on all income levels
- Capital gains and dividend taxes increasing
- Increased likelihood of layoffs across corporate America due to the cliff
- Increased taxes on high income earners from Obamacare (happening regardless of fiscal cliff)
- Major cuts to military spending
- Loss of many common tax credits and deductions
- Payroll tax holiday will expire and we’ll all be paying 2% more in taxes next year
- and more…
Personally, I don’t think it will happen, but instead, politicians will cobble together a lousy deal that does nothing more than kicking the can down the road again. But aside from the fact that I think people under the $250,000 income limit will see their finances largely unchanged, we haven’t made major changes to our finances. We have made some minor changes. I am actually contributing a bit less to the kids’ 529 college funds to build a larger emergency fund and we’re not doing our annual trip to the shore next year. We normally do it every year, but due to a wedding, we’ll be spending a week in the outer banks anyway. I wouldn’t blame the fiscal cliff for that per se, but if the economy were great, I might not feel so cautious about two different weeks at a beach in a given year. We had considered doing Disney World in 2013 since it’s been a few years, but it’s not in the cards for next year. Hopefully 2014. As you can see, consumer sentiment (at least this micro example) does impact spending and hence, corporate profits. But not everyone believes that. Some people think Congressional gambling and kicking the can is just part of doing business in Washington. I see it as harmful to the economy.
Is Your Spending Influenced at all by the Fiscal Cliff? This Past Year or for 2013?
Is Your Company Avoiding Risk Due to the Fiscal Cliff?
Any Other Impact You’re Seeing?
{ 5 comments… read them below or add one }
I’m raising capital to deploy if our markets implode. Now is not the time to spend.
I’m in Canada, but we’re all linked. I’m investing in my business and I also like physical bullion for savings. Next year I’ll take advantage of retirement room for market investments if the fiscal cliff helps me out with the prices. 😉
No changes! I expect it will be resolved by mid January. If capital gains rates increase, I probably will make some changes in the future.
They have not affected our spending because we don’t splurge on “things” all too often. However, it has changed our investing strategy just a bit. For the most part I am sitting on the sidelines until after the new year.
We haven’t made any changes. We don’t make enough to largely affected. Although, I think you are right. They’ll work something out that is largely pointless and we’ll have the debate again in a year or two.