Understanding the Fiscal Cliff

UNDERSTANDING THE FISCAL CLIFF .. ........ The "Fiscal Cliff" refers to the economic crisis that could take place at the end of 2012 if Congress allows tax cuts to expire while mandatory spending cuts are implemented. This would result in a possible change in deficit of up to $606 billion, a change in GDP of 4%-5% and the largest drop in federal revenues and spending in 40 years. THE MAJOR FACTORS: Health care reform taxes: $18 billion Emergency unemployment insurance benefits: $26 billion : Medicare doctor payment cuts: $11 billion Tax extender expiration: $65 billion Bush-era tax cut expiration: $221 billion ***. $606 Budget sequester: $65 billion "*** BILLION Payroll tax expiration: $95 billion Other revenue/spending changes: $105 billion .............. POSSIBLE OUTCOMES: 1. Punt* Congress and the president may decide to maintain the staus quo into 2013 and force the new session of Congress to address the issue. *Drawback of a "Punt": In the meantime, the U.S. debt will continue to grow, and Americans could face a crisis similar to the one occuring in Europe. 2. Compromise -Congress and the White House could agree on some tax and spending provisions, with the re-election of President Obama having a significant impact on those compromises. 3. Solve the problem Lawmakers could devise a solution addressing tax, spending and fiscal issues for the medium to long-term. 4. Fall off the cliff -Government officials fail to reach any sort of agreement and allow the current policy to be implemented as scheduled. If America "falls off the cliff," the deficit as a percent of GDP would be cut in half, but economists predict such a rapid change would plunge the country into another recession, given the U.S. economy's dependence on fiscal stimulus over the past several years. WHO IS WORRIED? Of all wealthy investors, Millionaires are the most concerned. More than three-fourths worry that lawmakers will fail to reach a resolution on the fiscal cliff before year end. (78% Other data sources: 1. bonds.about.com/od/Issues-in-the- News/a/What-Is-The-Fiscal-Cliff.htm 2. www.fidelity.com/viewpoints/fiscal-cliff Spectrem's MILLIONAIRE BROUGHT TO YOU BY CORNER MILLIONAIRE CORNER