Oh My God! It's the Fiscal Cliff -- Oh... Nevermind. As You Were

Tags: Fiscal Cliff, Politics, Harry Widdifield

Harry Widdifield by Harry Widdifield

Let's presume for just a moment that your gross household income was $50,054 – the median average household income in the U.S. in 2011 adjusted for inflation according to davemanuel.com. Let's presume that your household consists of a nuclear family with two dependent children. (We won’t add the half-child that so often shows up in statistics.) So, your gross taxable income after deductions would be, according to cbiz approximately $30,000. Let's also say, you were paying a 25% tax rate on that $30,000, so $7,500 divided out over 26 bi-weekly pay checks per year would be $288.46 deducted from each pay check.

Now, imagine the tremendous hardship it would be if starting tomorrow, because of a political snafu, better termed as “the fiscal cliff”, your bi-weekly paychecks suddenly started to yield you $23.07 less take-home per paycheck. How entirely ruined would you be?

Brace yourself. It could happen because of a convergence of new spending, due in a large part to ObamaCare (which should really be called 'Congress Care.' Congress had to pass the bill before the president could sign it. Moreover, had the president gotten his way, we would all, today, be enjoying a single-payer health insurance system – far superior to the deal we got). The pending expiration on December 31 of several key Bush era tax cuts, and a series of hard-hitting federal spending cuts (most notably to defense and Medicare) and changes to earned-income tax credits and other deductions, the average U.S. family could, if congress and the President don't find some sort of compromise, be faced with just that sort of apocalyptic, hellish future starting New Year's Day.

The matter is actually slightly (but only slightly) more serious than that. Allowing the so-called “fiscal cliff” to come and go without a resolution would capitulate a minor recession in an already lackluster economy, but it would be nothing like what would have happened had the banks collapsed in 2009. And it's probably neither the end of the world, a cliff of any sort, or even necessarily bad for the long term health of the U.S. economy.

Comparing the day to a cliff would be like comparing a backyard swimming pool to the Grand Canyon. It's absurd, and nothing more than a scare tactic designed to work everyone into a frothy lather that will likely not amount to anything more than politics as usual. But, as stated, the fiscal cliff truly could result in a small recession. In very real terms, here's how it works, from your $23.07 up.

  • Firstly, if you don't have $23.07, and you live hand-to-mouth like more than half of American households do, that's fewer Little Debbie Snack Cakes and Pepsi-Colas in your basket at the local Y'all- Mart. No big deal.
  • However, there are about 100 million workers in the workforce, so that's 100 million households eating a fewer snack cakes, drinking a fewer Pepsi-Colas, making their razors stretch another few days.
  • The loss of incoming revenues is bad news for the 1% of the population that employs the vast majority of the population in those $50,000 per year (or less) jobs. They're good at money, so they're likely to cut jobs before they'll suffer the economic losses themselves. It's not personal – just arithmetic.
  • Add to that that the actual numbers, if the convergence of forces causing the fiscal cliff (more like a bump) come into play, that the effects per individual vary based on income, meaning that the vast majority of people, those earning minimum wage (also the biggest consumers of snack cakes and Pepsi-Colas), will be losing cents, not dollars, but that the top percent of wage earners will be hit with much higher tax bills in terms of sheer dollars, so the effect on their net cash on-hand available for incidentals such as labor force, will be dramatically and immediately hit. Guess who's not coming to dinner?
  • So now, instead of losing $23.07 per paycheck, if you're working for a large company or a company that supplies inventory or services to a large company, you will be closer on Tuesday (though still not very close) than you are today, to losing your paycheck entirely. For you, that could really be a cliff. For the economy as a whole, it's but a speed-bump.

But you don't have to worry about that. Why? Simply put, even though arithmetic dictates that the government either bring in more money or spend less (or a combination of both), other than in the days of the Bill Clinton administration, 'math' is a four-letter-word to politicians. They're far more concerned with keeping their jobs, and while often corrupted by corporate/heartless thinking, they do comprehend that keeping their jobs usually requires that they fight tooth and nail to make sure you keep yours.

In short, they're playing a medium-stakes game of chicken and when it comes right down to it, it's simply a matter of who will fold first. You can likely leave your resume in the folder on your desktop. You probably won't be needing it – and you're probably still going to need someone to look after the kids after school on Wednesday. Don't count on the day off.

I'm not sure if it's sadder that congress and the President are both hell-bent on scaring voters into action (mostly letter writing and blog-mentary) by using terms like “fiscal cliff” or that they won't just admit that taxes have to go up and spending has to go down, or else we're going to keep bumping until, like a late 1970's Harley Davidson motorcycle, we bump our economy and nation completely and utterly apart.

In any case, I wouldn't stress the fiscal cliff. Wake me up for money-geddon.

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