The Fiscal Cliff is Looming! You Should Just Yawn. Here’s Why

by Darwin on August 17, 2012

You’ve surely heard the term by now, but the premise of the fiscal cliff is that there are several different parts of the tax code expiring and spending cuts set to kick in first thing next year. Conveniently, this occurs right AFTER the next presidential election, so we have to pretty much vote on faith this November that we can elect the right president to actually show some leadership and get something done. But what this has translated into this year, is the “uncertainty penalty”. I’ve had debates on Twitter and at dinner parties about what uncertainty actually does to businesses and consumers which impacts the economy at large (consumer spending, hiring, capital expenditures, etc.). While liberals will usually say it’s BS and Obama’s doing a great job, the data indicates the contrary. The latest report by Goldman Sachs shows that companies are deferring hiring and investing in expansion due to the uncertainty in everything from regulatory requirements to the fiscal cliff to who’s going to be in charge and what direction they want to take the country. There’s also confusion around whether now is a good time to implement a dividend since there’s uncertainty about how dividends will be taxed. Defense contractors have already begun layoffs in anticipation of potential defense cuts next year. As usual, Congress played with fire and now we’re feeling the result of unintended consequences.

Remember This?

This is an administration and Congress who rank reelection higher than any other priority, including actually resolving longstanding issues. It is much easier for them to maintain the status quo and set the country up for a horrific crash (or slow death, but they are CERTAINLY not setting up future generations for success) years down the road than to tackle an issue head-on in the present which might give their opponent in the next election a soundbite or voting record liability.

Nothing has changed and nothing will. The clowns at the helm will structure a poorly conceived last-minute deal which will appease enough voters to give them a decent shot a reelection. On the tough issues that require leadership, we will get none. The can will be kicked down the road. Why do you think the Alternative Minimum Tax has NEVER been fully rectified? Each year, at the last minute, Congress patches another 1 year patch to keep millions of additional Americans from being hit with the tax, since in their infinite wisdom, our prior leaders structured it with no index to inflation.

Remember the scary debt limit increase standoff? Our past few presidents have burnt through multiple debt limit increases during a single term and continue to need a new increase every year or two. This past year, Republicans held firm and postured to block the increase, which would effectively have the US default on its debt obligations, which would have had untold consequences. So, rather than actually reaching a concrete agreement to do things like, you know, restructure the tax code, close loopholes, eliminate special interest giveaways and restructure our entitlements, what did they go? They kicked the can (I called this exactly at the time). They set up a bunch of hypothetical spending cuts which would be catastrophic to occur later in the future, hence the fiscal cliff.

All they will do is kick the can again. This is what they do. And we have no leadership to force them to do otherwise.

So, as an individual, my suggestion would be to just anticipate the outcome and go about life as you normally would. There’s going to be a lot of chatter about cuts, taxes increasing, and all kinds of horrors like granny being thrown over a cliff. But the reality will probably be more of the same, especially if you make a few hundred grand per year or less.

Are You Worried About the Fiscal Cliff?

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1 AverageJoe August 17, 2012 at 11:09 am

“Nothing has changed and nothing will.” No truer words were ever spoken. They’ll find a way to duct tape at the last minute, as always.

This is why I don’t get angry about politics any more. Getting angry sells television viewers, but doesn’t get results. When you say “no leadership?” Amen, brother.

2 Brian Schmidt August 17, 2012 at 1:25 pm

Rather than lament “the clowns at the helm,” we should instead address the root cause of the problem – we, the voters. In a Democracy we get the leadership we deserve. That has never been more true than now.

The reason the airwaves are littered with negative ads is because they work. We reward the most negative campaigns by voting for their perpetrators and against their target. The reason nothing gets done in Washington is because we’ve voted into office a large number of people who think the word “compromise” is synonymous with “capitulation.”

It wasn’t always this way. In the 80’s we passed massive bipartisan tax code overhalls and entitlement reforms. In the 90’s we came together to reform welfare and pass a balanced budget agreement that actually produced fiscal surpluses.

The challenges we face today are no more daunting than those of the past. We just need to stop electing people who promise ideological purity, on every single issue, regardless of cost or consequence.

Michael Price Reply:

@Brian Schmidt One reason that negative ads work is that they actually contain relevant information, rather than pure propaganda. You need more of them. The problem isn’t too much “capitulation” or not enough “bipartisanship”, there is practically no difference between the parties and everyone in Washington is compromising everything of value. The problem is that nobody actually has to take responsibility for the consequences of their action, since that’s the whole point of the state.

Phil Pilola Reply:

@Brian Schmidt, I subscribe that EVERYONE get a list of every, I mean EVERY, incumbent that was previously in office, despite party line and vote AGAINST them. We the people are Not being represented by our ELECTED officials. Once a rich congressman gets elected, he forgets who he/she is suppose to serve and supports their own political interest. They are taken care of for LIFE, (check out what they get paid after only one term in office), vs what the average voter has to struggle with if they ever hope to retire. This year is a very good argument for one person, one term. If YOU can’t do the job, get someone who will represent the people, who CAN.
Signed a voter looking at retirement.

3 kb August 18, 2012 at 12:58 am

for the last few months…you have only given ‘previews’ of your current post on google reader. As that is my sole source of blog content management, i have not read any of your current blogs (you received an MBA and re-did your kitchen at some point..back in the day….)… I can only assume that this is a ‘incentive’ to view your actual site, with its actual ads, which increase your ‘actual’ revenue….

….sorry, i’m ‘unsubscribing’

by preventing me from seeing your full posts on ‘reader’ you’ve effectively removed my interest and thus the ad revenue i bring with it- I have no doubt you weighed these factors…but i figured it was my duty to inform you. You’ve had some amazing posts (trying to short the 3x indexes that …at least over time…looked to be trending south…-GENIUS) ..but in the end i favor convenience and you’ve blocked

best of luck in your future posts.


4 Kon Kunk September 14, 2012 at 3:14 pm

Andrew ( This is a good article.

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