Lazy Man and Money

Thoughts on the Fiscal Cliff “Solution”

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Over the past six and a half years, I’ve written quite a bit about personal finance and related financial news. However, whenever the really big financial news comes out, I’m often not interested in writing about it. Such is the case with the fiscal cliff. It seems like every news outlet is either writing about that or what’s going on Kim Kardashian’s tummy and I can’t recommend spending your time on either.

A few weeks ago, I relented and wrote about this fiscal cliff thing and I’m going to do today.

I have four main areas that I’d like to cover with regard to the fiscal cliff:

1. The 2% “payroll tax hike”

I’ve read numerous articles claiming that everyone’s taxes are being raised. Each article points to the 2% tax relief we (Americans) got to help boost the economy. This came from the Social Security tax. In other words, we took more from an underfunded source creating a bigger problem in the future. Guest author Kosmo covered it well in this article, Social Security’s Death Clock Ticks Faster this Year:

“So we take a program that is already on shaky ground … and cut funding? Sure, it will be great to have a few extra dollars in our pocket on pay day (I like extra money as much as the next person), but this seems to be missing the forest for the trees. Then there’s the prospect of this cut ending at the conclusion of 2011. Will it really end? Or will there be fear that a reversion to the regular rate will be characterized as a ‘tax increase’? If that’s the case, we could see a few more years of underfunding for social security until someone finally has the cojones to say ‘If we want to keep Social Security, we need to pay for it.'”

Nostradamus had nothing on Kosmo. Almost every article I read is characterizing this reversion to the regular rate as a tax increase. While technically true, it doesn’t deserve the bad press surrounding it. Either be thankful you got it in the first place, or celebrate our Social Security funding getting back to the norm.

The upshot of the 2% means that someone making $30,000 is going to be making around $50 less a month. I realize that there are a lot of struggling people out there. I feel for those people. On the other hand, to the people with iPhones and iPads complaining about this, “I’m Like, ‘F@#% You!’”.

I can save most people a lot more than $50 a month, relatively painlessly. I put a bunch ideas on that here: fast finance fixes.

2. The raising of taxes on people making 250K vs. 450K

We just finished saying how it is such a crime that the people making $30,000 a year are going to lose $50 a month, right? With all the struggling people and the high unemployment rate, we should be focused on these people right? So what better way to demonstrate the highest level of hypocrisy by making a big deal out of whether we are raising on those making 250K, 450K, or 1M?

Let me make sure I’m clear on this: Congress was quarrelling over whether to raise taxes on the top ~98% or the top ~99% at the expense of everyone (including those in both ranges since they’d have their taxes raised too).

The only way this could make less sense is if the quarrel was irrelevant in the first place. And according to this Forbes article it was. The long shot is that many of these people are going to get hit by the Alternative Minimum Tax (AMT) anyway.

Awesome… all that fighting for what seems to be nothing.

3. This “Solution” is just a drop in the bucket

The taxes amounted to 61 billion in more income a year for the government on average, while the annual deficit is something like 1100 billion (or better known as 1.1 trillion). So we’ve fixed about 5% of the problem for this year… and then we’ve got another 16 trillion in debt behind that.

I like how Rob Berger of The Dough Roller put it in one of the comments of his article: “… we’ve spent an extraordinary amount of time arguing over taxes on the top 2 percent when the revenue they will generate is so small compared to our problems. It would be like focusing all of our attention on patching a small hole in the Titanic while ignoring a huge hole on the other side of the ship.”

I wish I was an artist so I could draw some kind of political cartoon with an ant ($61 billion) trying to fight an elephant (1.1 trillion) and both them not being aware of the nuclear bomb being dropped on them (16 trillion). I realize you have to start somewhere, but it is ridiculous to be fighting a this level.

4. The people upset with politicians in Washington

This reminds me of one of my favorite Buffy the Vampire Quotes: “So, Dawn’s in trouble… must be Tuesday.” In other words, what else is new?

I am shocked that night after night the news was able to find people legitimately surprised by everything that happened with the fiscal cliff. I turned on CNBC and people were complaining about the lack of leadership in Washington.

How much progress do you think would be made if you put the Hatfields and the McCoys in the same room and told them they had to come to an agreement. What about the Autobots and the Decepticons? You get the idea.

It’s like complaining that a country in the middle of a civil war isn’t leading the rest of the world. It just isn’t going to happen.

I’m trying hard not blame one political party or the other, but well, screw it. When someone says, “The rape guy lost the election” and another person has to clarify, “which rape guy?” your political party has a problem. When one of your most public faces, Michele Bachmann, doesn’t know the basic facts about vaccines and autism, and publicly displays her ignorance many times, it demonstrates a lack of intelligence in your party’s leadership. All is not lost for your political party though… in the past few months Chris Christie has shown multiple times that he’s there for the people he represents with his response to Hurricane Sandy. He’s not afraid to praise the other political party when they help the cause. He’s not afraid to blast his own party and John Boehner when they leave without voting on the bill that would aid victims of Hurricane Sandy.

With people like that, maybe there’s hope that common sense and coming together for the welfare of the nation can still happen.

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):