“Fiscal Cliff” Approaches

There has been much talk of the approaching “fiscal cliff” and the ongoing negotiations in Washington to avoid it.  Fact is we should never have gotten this close.  The Fiscal Cliff for those who may not know is the name for the simultaneous expiration of the Bush era payroll tax cuts enacted in 2003 and serious cuts in government spending on 1/1/13.  This double whammy to the economy will shove the country over “the cliff” and into a double dip recession.  More payroll taxes on workers will reduce take-home pay and limit economic spending.  Less government spending, while inherently good, will reduce inflows into the economy and while coupled with less family spending will put the brakes on economic expansion.  One of the issues here is that the Federal Reserve has approached previous economic slow downs by lowering interest rates.  This makes money cheaper to borrow and encourages economic activity.  But now rates are already close to zero, so how can you lower them?

Suggestion?  Keep the tax-cuts in place, cut government spending gradually over 2013, lower business tax rates to encourage hiring and expansion and revise the tax code to limit loop holes which will pour revenue into the government coffers.  A flat tax would solve all problems immediately but that will never happen-too much politics!

Categories: Business

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