The Fiscal Cliff and Signals of Uncertainty

          With the upcoming fiscal cliff, the U.S. government faces the possibility of massive reduction in the deficit. You may be thinking that this is exactly what needs to be done in order to stop the ever-increasing debt that threatens to burden future generations with high interest payments on the debt and higher taxes/lower spending. Certainly, the United States needs to regain control of its debt spending habits. However, letting the Bush/Obama Tax Cuts expire (the trigger for the fiscal cliff) deliver a shock to everyone in the form of higher taxes (households would receive as much as a 6% reduction in income, according to the Urban Institute and Brookings Institution Tax Policy Center). Clearly not doing anything to avoid the fiscal cliff would cause some serious harm and likely put the economy back into recession.

          Besides the future costs, small businesses currently are holding back investments and hiring as the time for legislation to solve the inevitable tax increases gets shorter and shorter (Wells Fargo small business survey). The uncertainty that the U.S. government is instilling in the private sector is inhibiting growth and that is a deplorable outcome of the gridlocked government.

          Holiday shoppers on the other hand have not quite taken heed to the implications of the fiscal cliff. Spending among holiday shoppers has risen since last year and online spending once again hit its highest mark (according to Mercury News the Economy continues to improve despite the fiscal cliff).

          Small businesses are set to have a wealth of investment materials ready to hire and grow businesses if the fiscal cliff is avoided, but conversely, consumers would face a rude awakening of tax increases on top of heavy holiday spending if the fiscal cliff is not avoided. These imbalances are a result of the signals of uncertainty that the government is giving to the economy. Hopefully, things can be solved soon so that businesses and consumers can rest easy over the holiday break.



Washington Post Blog about the effects of the Fiscal Cliff: http://www.washingtonpost.com/blogs/wonkblog/wp/2012/12/01/how-a-sane-political-system-would-deal-with-the-fiscal-cliff/