Blog: How The Fiscal Cliff Affects You

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Gotta love Doomsday scenarios.  Seems we’re always hearing them.  I remember in seventh grade, our teacher said at the rate we were consuming fossil fuels, we’d run out of natural gas and oil by 1999.  Glad that didn’t happen.  People thought all our computers would shut down at Y2K.  So many “prophets” have predicted the end of the world, and those dates have come and passed.  Hope the Mayans are wrong.  And now we hear about the fiscal cliff and all the bad things that will happen if we fall off it and crash on the rocks below.  This isn’t to downplay the seriousness of our fragile economy and what this might do to it.  I just hope our lawmakers begin to compromise and make the right decisions to keep us from falling into another recession.

The stock market has dropped steadily the past few days – ever since the election – as the lack of change in Washington scares many into thinking a compromise will not be reached.  There is some truth to that.  Republicans hold firm to their ideals of not raising taxes on the rich.  Democrats don’t want to cut government spending.  How do we solve this stalemate?  I guess “we” don’t do anything.  We just hope the men and women we elected to represent us will come together and find a plan that takes us back on the road to fiscal recovery.

No matter what happens, it’s going to be painful.  You can’t just declare bankruptcy and wipe away $16+ trillion in debt.  We owe a bunch of money.  Our government is spending more than it brings in.  Be prepared for a combination of higher taxes and spending cuts to lower our deficit and then our debt.  It will take years to get back on track.  Everyone will suffer.  But if we learn to do more with less and take control of our own spending in our own homes, we will weather the storm and come out stronger in the end,

Here are some facts you need to know as we head toward this fiscal cliff.  These facts come from a great video made by Wall Street Journal reporter David Wessel.  All these facts are confirmed with the Congressional Budget Office.  You can watch the video at :!EE994540-68DA-4374-81FE-287A76422E5C

In 2011, President Obama and Congress passed a $3.6 trillion budget that left a $1.1 trillion dollar deficit.  So our government only brought in $2.5 trillion in taxes and other revenues.  Our government spends more than $2.2 trillion to pay for Social Security, Medicare, Medicaid and the interest owed on our loans to other countries like China.  The rest is spent on other things like defense, unemployment benefits, government worker salaries and other costs.

The cost of paying 2.3 million government salaries is $200 billion dollars.  Cutting government positions will only do so much.  Our defense budget last year was about $700 billion, more than the next 17 countries combined spend for their militaries.  Another reason we are in this mess is the federal government is collecting less in taxes from the middle class.  In 1981, the middle class paid an average of 19.2% of their salaries in federal taxes.  In 2009, the middle class paid an average of 11.1% of their salaries in federal taxes.  But who wants to pay more taxes?  We will need to pay more to close this deficit.

Here’s another troubling statistic.  We borrow $.36 for ever dollar we spend.  Yikes!  We can’t borrow ourselves out of this mess.  Each additional loan we take on makes it that much harder to pay off our previous loans.

Our government’s budget is a mess.  As much as people don’t want to mess with Social security and Medicare/Medicaid, it is draining our budget.  How do we bring in more money?  Many experts believe the first thing is to clamp down on the tax code and make sure businesses don’t use other countries to shelter their profits.  This past fiscal year, Apple only paid 1.9% income tax on $36.8 billion in earnings outside the U.S.  Businesses need to be better held accountable that they pay their fair share.  But all of this is a band aid over an amputation.  But at least its a start.  Regardless, this might end up being one Doomsday scenario that comes true – though we pray it never does.

You can contact Matt Stewart at

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