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What is this Fiscal Cliff Thing?

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I've got a bit of a confession to make and it may solidify my standing as one of worst personal finance bloggers ever. After the election results came through with Obama projecting to win Ohio, I saw a bunch of tweets on my Twitter stream with two messages: 1) "Congrats Obama" and 2) "Next up, tackle the fiscal cliff."

To the Google phone website: What is this fiscal cliff thing?

This Wikipedia article does a much better job explaining the fiscal cliff than I ever could. It's too complex to break down in this post, so I'll do a grand generalization and let you get all the fine details from there if you are interested.

The grand generalization is two-fold:

  1. Some tax cuts that President Bush created during his time in office are expiring
  2. Some planned budget cuts from the past would expire resulting in more spending

As I mentioned before it gets complicated especially with the politics of the Republicans and the Democrats slinging a bunch of nonsense. On my recent drive across the country, talk radio had Rush Limbaugh, Glenn Beck, and Sean Hannity on the multiple channels. I'm not into politics, but these big three of conservatives made it sound like Obama was out to purposely kill America, by raising taxes on the wealthy to help balance the deficit. Sounds like a very logical thing to me, but I've lived in blue states my whole life.

During the week, I ended up listening to a good 30 hours of their unproductive hatred of the democrats... stuff that makes a Red Sox fan and Yankees fan having a "discussion" after a few beers seem downright civilized. I finally came to this conclusion...

I don't care about the fiscal cliff... and neither should you.

Well, you should care about the fiscal cliff a bit, because it can have a real effect on your financial situation. If taxes go up, you'll have less money to spend. If spending is cut, you might lose on some key benefits you were counting on.

However, unless you happen to have the ear of the politicians working on it, you can't change anything that's going to happen with it. It's out of your hands. With that being the case, let's look at the things you can control:

  • Limit Your Tax Liability - If nothing is done long term capital gains tax will go up. So if you are sitting on a pile of stock and are looking to use the money any time soon (I love the real estate market), this may be a good time to sell some stock and hold on to cash. I'm personally not going to sell any stock, choosing instead to stay invested and hope that the gains of the market surpass the tax liability. This is also a good time to think about putting more money in a Roth IRA as you'll get it tax free no matter what the tax rate is. If income tax rates go up, there will be even more incentive to stash money in your company's 401k plan.
  • Minimize Your Expenses - Look into cutting down on any unnecessary subscriptions. I know multiple who have Netflix subscriptions that they admit they don't use. It may seem like a drop in the bucket, but it adds up to a couple of hundred dollars a year. I've compiled hundreds of ways to save money on nearly everything.
  • Double up on your Investment in your Career - Learning a new skill or two can not only help you keep your job, but also get a raise. Sure, some careers have limited ceilings, but you'd be surprised how many do not. I learned that lesson when I worked at Papa Gino's (a New England Italian food chain) at the age of 16. While being a cashier was my specialty (no one knew the PLU codes like me), I soon learned that if I could make pizzas and man the grill area, I'd be more valuable to them. I was one of the first to do dishes during the slow period, which showed management that I had the drive to do even mundane tasks if it helped the business (the truth was that I was just bored). In the end, it didn't take long before I was getting raises and as many hours as I wanted to work.

    Don't know what you can do to make yourself more valuable to your company? Ask your manager that question, she/he should be able to give you a good and hopefully productive answer.

If you going to waste your time with pointless debates, I suggest you move away the Republicans and Democrats debating the fiscal cliff and go all out and check out some Skip Bayless / Stephen A. Smith debates on the Patriots (ESPN is good for one of these annoying things a month):

Posted on December 10, 2012.

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Economy, News

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4 Responses to “What is this Fiscal Cliff Thing?”

  1. Kosmo says:

    “During the week, I ended up listening to a good 30 hours of their unproductive hatred of the democrats… stuff that makes a Red Sox fan and Yankees fan having a “discussion” after a few beers seem downright civilized. I finally came to this conclusion…”

    You do realize that the radio has an off button, right?

    I know that I’m a lot more interested in politics than you (politically interested, as opposed to politically active) and there’s no way in hell I’d listen to 30 hours of political talk radio in a week, regardless of which side is talking.

    Quite a few companies did change their dividend schedules. Dividends that would have normally been paid in 2013 are being paid in 2012 in a lot of cases. That’s a nice way to curry favor with your investors, by looking out for their interests.

    I actually wouldn’t be surprised if we went over the cliff slightly, and a compromise deal got worked out in early Jan (with changes retroactive to Jan 1). Of course, if this happens after the new congress is seated, another round of backroom wheeling and dealing would have to be done, in order to include the newbies.

    I’m very confident that a compromise deal will get done, though. If tax rates go up and services (spending) go down at the same time, it could be very problematic for house incumbents in 2013.

    Balancing a budget is one of those things that sounds like a great idea, but the devil is in the details. A lot of voting decisions are made at the personal level.

    If your rates go up and the roads and bridges around your area start to fall into disprepair (due to highway funds being cut – one example of government spending that many people overlook) would you say that the government is doing a good job, even if the deficit is lower? Perhaps some people would, but I can imagine the attack ads now. “Congress – taking more of your money and giving you less in return.”

    Note: I’m not saying that this is what SHOULD happen, just that I think this is what WILL happen.

    • Lazy Man says:

      Driving across the country is pretty boring. Driving across with a radio on off is even worse. I was pretty much a captive audience. With some preparation, I could have (and I should have) set up some books on tape.

      I think Electronics Arts should get together and make a Sim Economy or Sim Politics game. It would be like Sim City. However, you can raise taxes and upset the people or let the roads and other government services go underfunded and upset the people. (As a subplot, you’d get extra points for effectively hiding your mistress from your wife like a real politician… wait, did I go too far?)

  2. Meghan says:

    Love this post! If I didn’t work for the government, I’d try to life a year without politics. When I started Feb. 2, 2009, I didn’t think that Groundhog Day would come so often. Threats of furloughs when Continuing Resolutions expired because Congress couldn’t get it together long enough to pass a reconciled budget or when Congress was flinging poo over the debt ceiling used to really bother me. What if I can’t work/get paid?! The horror! This is a repeat of the debt ceiling show down. I just hope all these clowns pass something comprehensive instead of kicking the can down the road in attempt to make more drama in 2013. About the only thing I’m worried about, which we all should be concerned with, is putting more in to the emergency fund.
    PS A business wouldn’t run half the year on last year’s budget so why does the American public think that it’s okay for Congress to pass Continuing Resolutions? Want a more efficient government? Then we’d like to know what our funding is when the year starts on Oct. 1, not March whatever. (stepping off soapbox)

  3. kosmo says:

    I’d recommend loading up on the Baseball Prospectus Up and In podcast. It’s dead now (one of the guys got a job with a team), but there are 100+ podcasts in the series, most of them 2+ hours. You’d probably like it, because they go on very long pop culture tangent. Half hour tangents.

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