government spending http://www.wisebread.com/taxonomy/term/10445/all en-US Preparing for the Fiscal Cliff http://www.wisebread.com/preparing-for-the-fiscal-cliff <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/preparing-for-the-fiscal-cliff" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/clifty-falls.jpg" alt="Clifty Falls" title="Clifty Falls" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>I'm not an alarmist on the fiscal cliff. In fact, I figure it's almost a non-issue. But that's no reason not to do a bit of preparation. (See also: <a href="http://www.wisebread.com/stalemate-on-the-debt-ceiling">Stalemate on the Debt Ceiling</a>)</p> <p>Under current law, come January first there'll be a bunch of changes to taxes and government spending:</p> <ul> <li>The Bush tax cuts expire</li> <li>The payroll tax holiday expires</li> <li>Most government spending (except Social Security) gets cut across the board</li> <li>Medicare reimbursements to doctors get cut</li> <li>The Alternative Minimum Tax returns in full force</li> <li>Extended unemployment benefits expire</li> </ul> <p>Having these changes all happen at once is probably a bad thing. (Although, if you've been worrying about government debt, these changes a long way toward fixing things &mdash; a lot further than any other plan that's been put forward.)</p> <p>Individually, most of these changes are pretty sensible. The tax increases are significant, but would bring the level of revenues reasonably close to providing for the spending that voters seem to want. The spending cuts are pretty harsh, but they're probably the best shot we've had in a generation at cutting expensive parts of government that couldn't otherwise be cut (like defense spending).</p> <p>The problem is that having them all go into effect at once would probably push the economy into recession.</p> <p>As I say, I don't think that's very likely. Even if we do &quot;go over the fiscal cliff,&quot; I expect Congress will fix things pretty quickly after that. (Because fixing things <em>after</em> will entail cutting taxes and boosting spending &mdash; two of Congress's favorite things to do. Fixing things before is less likely, because fixing things <em>before</em> would entail raising taxes and cutting spending, and Congress hates to do that.)</p> <p>Whether they fix things before or after isn't very important. Even if the rates are allowed to go up, there'll be no immediate effect &mdash; paychecks would only be affected after the IRS issues new withholding tables, which would take weeks. Long before that happened, Congress will have reinstated the tax cuts for almost everyone.</p> <p>Still, if there is no compromise, the tax increases would be significant:</p> <ul> <li>FICA would go up by 2 percentage points.</li> <li>All income tax brackets would go up by 3 to 5 percentage points.</li> <li>Tax rates on capital gains would rise.</li> <li>Tax rates on dividends would more than double.</li> <li>The child tax credit drops from $1000 to $500.</li> <li>The marriage penalty would return.</li> </ul> <p>The hardest hit would be two-income couples with children, but everyone would see their taxes go up.</p> <h2>Planning</h2> <p>As a &quot;just in case&quot; measure, here are my tips on what you ought to be doing.</p> <p><strong>Figure That Your Taxes Might Go Up</strong></p> <p>If you're making over $250,000 a year, your taxes almost certainly will go up. Maybe you'll be paying a higher rate, maybe you'll just see your deductions get capped or phased out. Either way, you'll be paying more.</p> <p>If you make less, there's a pretty good chance that the cuts will be maintained. There's no guarantee, though, so you need to find some slack in your budget just in case.</p> <p>If you're in one of the categories that's especially hard hit (two income couples with kids, people with a lot of deductions that face the AMT), your taxes might go up a lot &mdash; so you ought to take some time to do a little research and figure out exactly how bad it might be. Otherwise, just figure that your tax rate will bump up by 5 to 7 percentage points &mdash; and make sure that there's enough flexibility in your household cost structure to absorb the hit.</p> <p><strong>Think About Whether You'll Be Directly Affected by the Spending Cuts</strong></p> <p>If you're a government contractor, or if your employer is, figure on a 10% cut in revenues. Similarly, if you or your employer is a health care provider, Medicare reimbursements are going to drop by a lot. (Medicare coverage isn't going to fall, but the amount that doctors get paid to provide it will.)</p> <p>Expect all the things that usually happen when revenues fall &mdash; lower profits, smaller bonuses, hiring freezes, layoffs, etc.</p> <p><strong>Understand That the Whole Economy Will Be Affected</strong></p> <p>Even if you're not a government contractor, some of your employer's customers (or your customers) are. And, of course, everyone's taxes will have gone up. Everyone is going to have less money; everyone will be buying less.</p> <p>As I say, I think there's a pretty good chance that we'll &quot;go over the fiscal cliff,&quot; but also a pretty good chance that a lot of it will be repealed shortly after.</p> <p>My best guess is that if you make less than $250,000, the only change you'll see is that FICA will return to its old rates (a 2 percentage point jump). If you make more than that, you'll probably see higher taxes one way or another.</p> <p>I doubt if we'll see the huge spending cuts currently on the books, but we probably will see spending cuts.</p> <h2>Taking Action</h2> <p>My basic advice is much the same as it always is &mdash; be <a href="http://www.wisebread.com/emergency-belt-tightening">a little extra frugal</a>. Boost your <a href="http://www.wisebread.com/figuring-the-size-of-your-emergency-fund">emergency fund</a> a bit. Make sure that you're <a href="http://www.wisebread.com/are-your-finances-fragile">not locked into paying for stuff</a> that you won't be able to afford if taxes are a little higher.</p> <p>Once you've done those things, you can pretty much quit worrying about the fiscal cliff.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/preparing-for-the-fiscal-cliff">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-economic-stimulus-bill-will-the-heavy-debt-be-worth-it">The Economic Stimulus Bill: Will The Heavy Debt Be Worth It?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-pessimism-can-actually-improve-your-finances">4 Ways Pessimism Can Actually Improve Your Finances</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-golden-rules-of-personal-finance-everyone-should-know">10 Golden Rules of Personal Finance Everyone Should Know</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-money-moments-that-should-be-on-everyones-bucket-list">8 Money Moments That Should Be On Everyone&#039;s Bucket List</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-your-assets-costing-you-too-much">Are Your Assets Costing You Too Much?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance federal taxes fiscal cliff government spending Thu, 15 Nov 2012 10:36:46 +0000 Philip Brewer 955834 at http://www.wisebread.com The Economic Stimulus Bill: Will The Heavy Debt Be Worth It? http://www.wisebread.com/the-economic-stimulus-bill-will-the-heavy-debt-be-worth-it <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-economic-stimulus-bill-will-the-heavy-debt-be-worth-it" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/stimulus-bill-2.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="250" /></a> </div> </div> </div> <p>In recent weeks, I've gotten into some great discussions with people about the <a href="http://www.wisebread.com/will-the-buy-american-clause-in-the-stimulus-bill-create-or-destroy-jobs">stimulus bill</a> that was cobbled together by Congress last week.&nbsp;&nbsp; At one point, one of the proposed versions of the package grew to a staggering $900 billion until it was wrestled back to a relatively trimmer $800 billion.&nbsp; I suppose we should thank our wonderful leaders that they were somehow able to spare us the additional debt.</p> <p>A lot of people are still preoccupied about where their stimulus check is, but let's look at the big picture for the moment.&nbsp; Now that the stimulus package details have been released, I've found many people weighing in on both sides of the debate: is the plan justified?&nbsp;</p> <h3>The Hotly Debated Economic Stimulus Bill</h3> <p>Some of the arguments and concerns I've read have been swirling around these points:</p> <ol> <li><strong>We need to spend for the short term.</strong> Spending is expected to take us out of the hole we're in. Many students of Keynesian economics and past history will vouch for the effectivity of this approach.<br /> &nbsp;</li> <li><strong>We'll be in deep debt as a nation for many generations.</strong> We are sacrificing our future and our children's future to speed up the economy's recovery.&nbsp; Many personal finance enthusiasts maintain this concern, as many of us are debt averse.<br /> &nbsp;</li> <li><strong>We need to define &quot;stimulus&quot;.</strong> What kind of spending should this bill contain?&nbsp; There seems to be spending provisions here that should be part of a different kind of budget (e.g. could some of these proposals turn into &quot;pork&quot;)?&nbsp; Many students of politics know that this bill can be a magnet for determined lobbyists who can spin a tale of &quot;stimulus&quot; into any cause they drum up.</li> </ol> <h3>How Effective Is This Stimulus Plan?</h3> <p>The hefty economic stimulus package is jampacked with provisions that try to please everyone. According to <a href="http://www.cnn.com/2009/POLITICS/02/13/stimulus.winners.losers/">this CNN report</a>, the big &quot;winners&quot; (whose piece of the stimulus pie grew larger by the final version) were in the areas of transportation, health and science whose allocations were in the multi-billions. As for us regular people, <strong>we'll be awaiting tax cuts to the tune of $400 per individual or $800 per family. <br /> </strong></p> <h4>Issues With The Tax Cuts</h4> <p><strong> Do you wonder whether this bill will be effective enough to resuscitate our crippled economy?</strong>&nbsp; Will there even be enough consumer spending done at all?&nbsp; Tax breaks and tax deductions are nice, but the question remains whether the general population will actually be putting that extra money to good use.&nbsp; Here are just a couple of scenarios that can potentially deflate the consumer spending goals of this stimulus plan.&nbsp; What if:</p> <ul> <li><strong>We spend the stimulus money on the wrong things.</strong>&nbsp; Apparently, the first wave of <a href="http://www.wisebread.com/how-to-turn-an-1800-stimulus-check-into-1980">stimulus checks</a> didn't really achieve its desired effect. The spending was misplaced, with reports surfacing that consumers where using the money on imports.&nbsp; So let's see how that works: we borrow money from foreign interests, from which we get funding for our economic stimulus checks. Then we turn around and spend the bucks on things manufactured abroad.&nbsp; A vicious cycle if I ever saw one.</li> </ul> <ul> <li><strong>We bank our tax credits.</strong> What if people collectively take a step towards self-preservation, and decide instead, to keep and save the money they receive from the government?&nbsp; Then any economic stimulation won't be coming from the consumers and those tax cuts will be for naught.</li> </ul> <h4>Issues With Government Spending</h4> <p>Well, we can at least expect that there's going to be some serious guaranteed government-funded spending. We can count on the majority of the package that's dedicated to national spending to hopefully get us out of the doldrums. Just please don't let the rumors be true that multi-millions will be going to <a href="http://www.gop.gov/wtas/09/02/11/drudge-300-million-in">green golf carts</a> for government officials or to save the endangered <a href="http://www.mercurynews.com/peninsula/ci_11696283">salt marsh harvest mouse</a> (a noble cause for a different budget).&nbsp;&nbsp; </p> <p>Our debt load has ballooned to an astonishing 1.5 trillion in just a year if you add up Bush's bailous and TARP funds to Obama's bill. Maybe we should enjoy our tax cuts now while we can, because we'll be paying the financial piper for a good long while.&nbsp; <br /> &nbsp;</p> <p>&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/silicon-valley-blogger">Silicon Valley Blogger</a> of <a href="http://www.wisebread.com/the-economic-stimulus-bill-will-the-heavy-debt-be-worth-it">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/self-sufficiency-self-reliance-and-freedom">Self-sufficiency, self-reliance, and freedom</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/peak-debt">Peak Debt</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-can-you-do-with-13-extra-a-week-0">What can you do with $13 extra a week?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-us-government-wants-you-in-debt">The U.S. Government Wants You in Debt</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-does-the-fannie-mae-and-freddie-mac-bailout-affect-you">How does the Fannie Mae and Freddie Mac bailout affect you?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Debt Management debt economic stimulus bill Economy government spending stimulus tax breaks Tue, 17 Feb 2009 18:16:09 +0000 Silicon Valley Blogger 2848 at http://www.wisebread.com