Watch Out For the Fiscal Cliff

The recently coined term “Fiscal Cliff” addresses the fears that we will see increased taxes and reduced government spending in 2013. If Congress does not act to avert this Fiscal Cliff, we may be in for another economic downturn in 2013. The Fiscal Cliff could include the following events at the end of 2012 and beginning of 2013:

  • The Bush tax cuts expire.
  • The reduced employee Social Security tax rate will go up by 2%.
  • A new tax of 3.8% will be added to investment income for families with incomes above $250,000 or individuals with incomes of $200,000.
  • Discretionary government spending will be reduced by $2.1 trillion over ten years.

Sources: CBO Sees 2013 Recession Risk, Damian Paletta, The Wall Street Journal, updated May 23, 2012; What is the “Fiscal Cliff”? Andrew H. Friedman, Eaton Vance on Washington, May 2012; Q&A: What Is the ‘Fiscal Cliff’? Washington Wire, The Wall Street Journal, updated May 22, 2012.