Fiscal Cliff 2013

The Fiscal Cliff is a Mole Hill Compared to This

Everyone is afraid of falling off the "fiscal cliff." But there's another dangerous countdown clock about hit to zero.

And no one is talking about it, even though it will spell even more financial problems for us all.

At midnight on December 31, 2012, the Transaction Account Guarantee (TAG) program will expire.

The TAG program was initiated at the height of the credit crisis when depositors were fleeing banks for fear they would go under.

To quell what was turning into a run on banks, the FDIC upped regular deposit insurance from $100,000 to $250,000 and under the TAG banner initiated unlimited insurance for all non-interest bearing transaction accounts.

It's the second part that's important because that's the piece that will soon come to an end.

When the unlimited insurance expires, corporations, businesses and depositors -- whose soon- to- be- uninsured deposits, which total some $1.4 trillion, are likely to flee smaller banks -- will rush into money market funds and seek the safety of short-term U.S. Treasuries.

This will create serious negative repercussions affecting our economic future.

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What's Next for the Fiscal Cliff?

With both parties viewing the results of Tuesday's election as a mandate from the American people to address the major economic problems, Congress and the Obama administration will focus first on not having to cross the fiscal cliff.

Clearly, neither party wants the American economy to ever look anything like it did in 2008 and 2009. Towards this end, Congress has gone back into session to reach an agreement to move the economy forward.

Drawing a line, House Speaker John Boehner, R-OH, said Thursday that, "Raising tax rates is unacceptable. Frankly, it could not pass the House. I'm not even sure it could pass the Senate."

Democrats have taken upon the victory on Tuesday to urge a strong line be taken in budget negotiations.

Speaking today (Friday), President Obama kept his call for greater taxes on higher income earners.

"As I've said before, we can't just cut our way to prosperity," President Obama said Friday. "If we're serious about reducing the deficit we have to combine spending cuts with revenue. That means asking the wealthy to pay a little more in taxes." //

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Fiscal Cliff: Are We About to See Compromise in Washington?

Now that Election 2012 is over, Washington is readying for its next battle: the fiscal cliff.

U.S. President Barack Obama's victory in Tuesday's election has upset the Republicans' political calculus. The purpose of four years of obstruction was to deny the president any legislative achievements and thereby prevent his re-election.

It didn't work.

With the election behind us, the politics of obstruction has lost its meaning. There is nothing to be gained from obstruction for obstruction's sake.

Boehner made that abundantly clear when he read a statement Wednesday afternoon in which he opened up the possibility of compromise in order to avoid the looming fiscal cliff at the end of the year.

"For purposes of forging a bipartisan agreement that begins to solve the problem, we're willing to accept new revenue, under the right conditions," Boehner said.

"The president has signaled a willingness to do tax reform with lower rates," Boehner continued. "Republicans have signaled a willingness to accept new revenue if it comes from growth and reform. Let's start the discussion there."

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What is the Fiscal Cliff?

What is the fiscal cliff, and how do we avoid it?

The fiscal cliff will be crossed on Jan. 2, 2013 when $530 billion in tax increases and spending cuts at the federal level take place due to a previous budget agreement between Congress and the Obama administration.

Since Congress and the Obama administration could not reach an accord to reduce the federal budget deficit, a series of automatic tax hikes and decreases in spending will take place instead to achieve the necessary savings.

This is much like the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act from 1985. The fiscal cliff will pack a one-two punch to U.S. cities that are already burdened by heavy debt loads, and raise taxes on U.S. households struggling to recover.

What is the Fiscal Cliff Effect on the U.S. Economy?

According to the Congressional Budget Office, a non-partisan organization, if there is no other agreement and the fiscal cliff is crossed on Jan. 2, the United States could fall back into a recession in 2013.

That will have a tremendous negative impact on the global economy as Europe is in a recession and economic growth is slowing in China and India.

Based on the 320-point drop in the Dow Jones Industrial Average the day after President Obama's re-election, Wall Street is not bullish about the future of the economy.

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Hurtling Over Fiscal Cliff Likely Regardless of Election Outcome

Representatives of the Group of 20 (G20) industrialized countries meeting in Mexico City over the weekend begged U.S. officials attending the meeting to avoid the impending fiscal cliff in 2013.

Chile's finance minister, Felipe Larrain told Reuters, "If we're not able to resolve the cliff, that could be the tipping point for a much more complicated scenario in the world economy."

The G20 clearly recognizes the risk of the U.S. falling off of the fiscal cliff.

Comparing the relative risks of the U.S. and Europe, Canadian finance minister Jim Flaherty told Bloomberg Businessweek, "In the near-term, clearly the U.S. situation is the higher risk."

Tomorrow's presidential election may complicate the situation regardless of if U.S. President Barack Obama wins a second term or if Mitt Romney is our next president.

Washington insiders have suggested that, unless there is a wider than expected margin of victory for either candidate, legal challenges are likely, which could put the result of the election in doubt.

In fact, each side has hefty legal teams waiting to jump to action if the election is close.

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Protect Your Money from the Fiscal Cliff Attack on Dividends

Anyone not living in a cave by now knows about the ominous tax-cut situation - fiscal cliff 2013 - that could be unleashed on the U.S. economy early next year.

That is assuming Congress does nothing, and, let's be honest, doing nothing is one thing in which Congress is truly proficient.

Unfortunately, one of the tax cuts that will sunset should the fiscal cliff become a reality is the dividend tax break that went into effect in President George W. Bush's first term.

This is not an endorsement of one candidate or party over the other. After all, the economy could fall off the fiscal cliff regardless of the outcome of next week's presidential election.

However, there is little refuting the fact that the dividend tax break has been a winner for investors.

The top dividend tax rate is currently 15%, but for the most fortunate among us, that rate could surge to 40% under the fiscal cliff scenario.

In other words, letting the dividend tax cuts expire amounts to a government boondoggle of epic proportions that even Uncle Sam would have a hard time topping.

Here's why.



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The Fiscal Cliff's Biggest Surprise Could Be a Rising U.S. Dollar

My grandmother Mimi had a saying that was as blunt as it was uncouth. "When the stuff hits the fan," she used to say, "it will not be evenly distributed."

This one came up often when she sensed that world events were about to take a turn for the worse.

You've heard me mention Mimi before. She was widowed at a young age and went on to become a savvy global investor long before people thought to look beyond their own backyard.

Mimi never cared what Wall Street's "Armani Army" had to say.

Instead, she preferred to travel widely to see for herself what the real story was. Having grown up in the midst of the Great Depression, she believed that people were the ultimate indicator and that governments were the penultimate contrarian influence.

If she were still alive today, I think she'd encourage us to take a good hard look in the proverbial "mirror" especially with regard to the looming fiscal cliff making headlines the world over.

And I don't think she'd waste any time with the doom, gloom and boom crowd either.

She was always on the hunt for opportunity when everyone else was running from chaos. Thanks to her, it's a habit that remains firmly ingrained in me today.

Not One but Three Fiscal Cliffs

And that brings me back to the "fiscal cliff."

In my mind, this is a misnomer. There isn't really a singular fiscal cliff . As I explained earlier this summer to Sheryl Nance of Forbes there are actually three.

  • The massive adjustments headed our way as tax and spending cuts expire and come into effect beginning in 2013. You may know it as taxmegeddon.
  • The debt debacle and the near complete lack of any sort of credible financial consolidation plan that will affect everything from interest rates to collateral requirements and the US credit rating - again.
  • And politicians who simply don't understand that issues 1 and 2 are already dramatically impacting the economy long before the theoretical limits of spending come into play. Profits are declining and 61% of companies that have reported through Monday October 22nd have failed to meet expectations. Hiring is slowing and top line revenue is increasingly hard to come by.
Together, they constitute a massive threat to the U.S. economy that could push our beleaguered "recovery" to the breaking point. (And I use all the sarcasm I can muster with that because our recovery isn't anything close to what's needed.)

Many believe this is a moot point because Congress will get down to business in November after the Presidential Election takes place. The hope is that some sort of budget agreement will be reached and that the US economy will then be positioned for stronger growth in 2013.

Yeah and I suppose the tooth fairy will show up, too.

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New Report on Fiscal Cliff 2013 Details Our Painful Future

Are you worried yet about fiscal cliff 2013?

If not, here are millions of reasons to be concerned.

According to a report released today (Friday) from the National Association of Manufacturers, "The "fiscal cliff' is still two months off, but the scheduled blast of tax hikes and spending cuts is already reverberating through the U.S. economy, hampering growth and, according to a new study, wiping out nearly 1 million jobs this year alone."

The report, titled "Fiscal Shock: America's Economic Crisis," details how the fiscal cliff could destroy some 6 million jobs through 2014, and send unemployment skyrocketing to nearly 12%.

"The worst could be ahead," the report said. "If the fiscal contraction happens, the economy will almost certainly experience a recession in 2013 and significantly slower growth through 2014."

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Peter Schiff: If You Think the Fiscal Cliff is Bad, Just Wait

Forget the fiscal cliff, says economic expert Peter Schiff. This country faces a far bigger financial crisis.

While the failure of Congress to act to prevent or mitigate the fiscal cliff - the combination of tax increases and federal spending cuts due to hit on Jan. 2, 2013 - would slam the economy hard, Schiff says it would be preferable to the crash he foresees.

"It's not because we go over this phony fiscal cliff, it's probably because we don't go over that one because the government cancels the spending cuts, cancels the tax hikes, and instead we end up going over the real fiscal cliff further down the road," Schiff told Breakout recently.

Schiff, the CEO and Chief Global Strategist of Euro Pacific Capital, said the real threat to the U.S. economy is "where interest rates spike and we can no longer afford to pay the interest on the enormous amount of debt we have."

He also blamed the Federal Reserve's zero interest rate policy for making government borrowing too easy.

The national debt, fueled by annual budget deficits of more than $1trillion, crossed the $16 trillion threshold at the end of August. At current spending rates it will hit $17 trillion next June.

"We can't keep interest rates artificially low to stimulate the economy because it's the low interest rates that are the source of the problem," Schiff said.

That about a third of the U.S. debt is held by foreign countries such as China and Japan is a ticking time bomb.

"In fact, the real fiscal cliff comes when our creditors want their money back, and we don't have it," he said.

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CEOs, CFOs Voice Concerns over Crippling Fiscal Cliff

While the fiscal cliff might not be at the forefront of concerns for the average American, it is deeply affecting the spending and hiring plans of many businesses.

Four recent surveys show that corporate chief executive officers and chief financial officers are taking measures to prepare for the Jan. 2, 2013 actuation of the fiscal cliff.

According to a recent study by the Congressional Budget Office, this could easily take the U.S. economy back into another recession. Despite that threat, it appears less and less likely that anything will be done by the Obama administration and Congress to avert the crisis.

Needless to say, this has not gone unnoticed by the high level executive leadership of corporate America.

"This complete Mexican standoff that we have now is not getting us anywhere," Jim McNery, Chief Executive Officer of Boeing Company (NYSE: BA) said about the looming failure of Congress and the Obama administration to mitigate the impact of the fiscal cliff.

Business Feels Bearish

Since businesses see fiscal cliff talks failing to deliver progress, growth expectations of the country's biggest companies have fallen.

Members of the Business Roundtable, an association of chief executive officers, expressed in a recent survey bearish sentiment for every business measure (sales, capital spending and hiring).

From the results of this research, the Business Roundtable has lowered its projections for a wide range of economic indicators for its most recent CEO Economic Outlook Survey. These were registered at the lowest level since 2009, the nadir of the Great Recession.

Those closest to the fiscal operations of a company, the chief financial officers, are similarly bearish due in a large part to fiscal cliff 2013.

The CFO Signals Survey found that 47% of chief financial officers are more pessimistic about how well their company will do this quarter.

According to the survey, that sentiment represents the "most somber year-over-year expectations" ever in the history of that research report.

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CEOs and CFOs view hitting the fiscal cliff as a huge failure in the economic leadership from the elected political leaders in Washington, DC.

John Engler, the former governor of Michigan who is now the President of the Business Roundtable, compared the negligence to the recent standoff between the National Football League (NFL) and its referees.

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Fiscal Cliff: How Each Candidate Plans to Save Us

America is moving closer to falling off the dreaded fiscal cliff, but Congress continues to move at a snail's pace in addressing the pressing subject.

And while the nation waits for a resolution, the costs of doing nothing are rising, with U.S. taxpayers' money at risk.

Lawmakers have taken a "hurry-up-and-wait" stance, putting off until after the November presidential election any decision-making about the most crucial matter currently facing Congress.

At issue is whether to extend some or all of the Bush-era tax cuts and how to handle the nearly $1 trillion in spending cuts slated to kick-in starting Jan. 1.

If the expiration of tax cuts comes to fruition, the result will be the biggest tax increase ever levied on Americans (Taxmageddon 2013).

If the spending cuts start rolling out, thousands of jobs will be lost, our country's security will be put at risk, businesses will sorely suffer and programs that rely on government contracts will disappear.

With just a few weeks before ballots are cast for our next president, the looming fiscal cliff has become a heated topic on campaign trails. Falling off the cliff would undoubtedly thrust the struggling U.S. economy into a recession in 2013, a consequence neither contender wants to tackle.

So how do they plan to avoid the fiscal cliff? Let's take a look.

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Fiscal Cliff 2013: The Biggest Threat To Your Profits?

Fund managers aren't taking any chances with fiscal cliff 2013 - they're making sure their portfolios are ready now.

That's because global money managers view the looming fiscal cliff as the biggest current threat to investors' profits.

A new Bank of America Merrill Lynch Fund Managers survey this month revealed anxieties about the approaching and almost imminent fiscal cliff, which the country will go over Jan. 1 if Congress doesn't act, now for the first time in 18 months trump fears about the Eurozone sovereign debt crisis.

At the forefront are worries over trillions of dollars of spending cuts set to kick in at the start of next year that will threaten our national security, millions of jobs, and government-funded programs. Those colossal cuts will coincide with the expiration of Bush-era tax cuts which will amount to the biggest ever tax increase on American taxpayers.

The double whammy now has 35% of fund managers citing the fiscal cliff as the biggest danger to investments.

On the flip side, angst over the European debt mess as the top investment worry has waned to 33% from 48%. The drop follows the recent announcement of further support from the European Central Bank and its launch of outright monetary transactions (OMT), or bond buying, to reduce the cost of buying for bordering Eurozone countries.

The figures are from a Sept. 7-13 BofA survey of 253 managers who invest some $681 billion for clients.

Uncertainty surrounding Election 2012 has made the fiscal cliff effect a bigger threat.

"The upcoming election is putting these fears into sharper focus," noted Michael Hartnett, chief investment strategist at Bofa Merrill Lynch Global Research.

But instead of living in fear, you can feel safer by following the same preparation as some of the biggest global money managers.

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Fiscal Cliff Deals "Devastating" Blow to Defense

The potential effect of the fiscal cliff on our national security spending just became clearer - and more unsettling.

Friday, amid pressure from Congress, the Obama administration for the first time outlined how some $100 billion in spending cuts scheduled to take effect Jan. 1 will disrupt thousands of federal programs if no action is taken to avert the fiscal cliff.

The automatic cuts, known as sequestration, are a kind of threat Congress implemented on itself in the 2011 Budget Control Act. Yet, they were never meant to actually happen.

As White House press secretary Jay Carney explained in Friday's briefing, the idea was to make the cuts so objectionable that Congress would come up with a more acceptable way to reduce the deficit.

"The sequester was designed to be bad policy, to be onerous, to be objectionable to both Democrats and Republicans," Carney said.

The detailed report is aimed at putting Congress into action. The Office of Management and Budget clarified in its introduction, "The specter of harmful across-the-board cuts to defense and nondefense programs was intended to drive both sides to compromise. The sequestration itself was never intended to be implemented."

But to date, no concessions have been agreed upon and the perilous looming cuts are coming closer to reality. The announcement brings the U.S. nearer to going over the dreaded fiscal cliff, which scores of analysts say will thrust the economy into a recession in 2013 by draining mountains of money out of the already besieged economy.

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Fiscal Cliff Not a Priority for This Do-Nothing Congress

With the United States poised to topple over a recession-inducing fiscal cliff in January 2013, you'd think Congress would be frantically working on a solution.

After all, that's what we elected them to do.

The fiscal cliff is political shorthand for the combination of spending cuts and tax increases scheduled to hit Jan. 1, 2013. It's the result of the expiration of the President Bush-era tax cuts combined with $1.2 trillion in automatic reductions in federal spending made last summer as part of the deal to raise the debt ceiling.

But rather than focus on figuring out how to avoid the fiscal cliff, Congress members are focused on figuring out how quickly they can get out of Washington for their next recess.

"Everyone wants to get out of town - fast," a top Senate aide told Reuters.

That would be fine if lawmakers were just finishing a grueling summer session, but they just returned from a five-week recess. The current session will last just two weeks, and then Congress departs for another recess, possibly as long as seven weeks.

And what lawmakers have placed on the agenda for their abbreviated session hardly compares to the flashing-red-lights, sirens-blaring crisis the United States faces with the fiscal cliff.

Instead Republicans and Democrats will spend much of their limited time voting on bills and holding hearings designed to score political points they can use in their re-election campaigns.

The Democrat-controlled Senate plans to vote on jobs bills they know the House Republicans will reject; the GOP-controlled House plans to repeal Obamacare for the umpteenth time, which obviously will get nowhere in the Senate.

"Democrats appear ready to ride out the rest of the year spinning tall tales that the economy is doing fine while doing virtually nothing about the problems we face as a nation," Senate Minority Leader Mitch McConnell, R-KY, told Politico.

Rep. Chris Van Hollen, D-MD, called the GOP moves an "example of Republicans wasting time that should be spent on finding solutions to the country's problems. We're up to zero votes on Obama's jobs bills and more than 30 votes to repeal Obamacare," he told Politico.

Meanwhile, America edges closer to the fiscal cliff with each passing day.



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Don't Let Fiscal Cliff 2013 Scare You from Dividend Stocks


Amid all the talks of fiscal cliff 2013, which we'll hit Jan. 1 if Congress doesn't act, some analysts are warning of the impact on dividend stocks.

That's because some of the tax increases associated with the fiscal cliff could deliver a hefty tax hike to dividend income.

But the possibility of higher dividend taxes doesn't mean you should ignore the sector altogether.

History shows that dividend-paying stocks have outperformed non-dividend shares even at a time when taxes were much higher. For income-seeking investors, any pullback in dividend-paying stocks as the fiscal cliff approaches may just be a buying opportunity.

Investors early to the game will enjoy dividend payments and also benefit from these companies' healthy market performance.

Fiscal Cliff Effect on Dividends

If nothing is resolved before year-end and Congress fails to take action, dividends received will be taxed as ordinary income instead of the current maximum 15%. Ordinary income tax rates are scheduled to revert to pre-2003 levels, with a maximum of 39.6%.

In addition, a new 3.8% tax will be tacked on to help pay for the Affordable Care Act. For some taxpayers, dividend taxes would nearly triple.

But remember, before investors enjoyed the 2003 dividend tax breaks that put dividend taxes on par with capital gains taxes, payouts had been taxed for decades at ordinary income rates. For some, the tax was as much as 91% in the late 1950s and early 1960s, 70% in the 1970s and 50% in the early 1980s.

Despite those lofty tax rates, dividend stocks continued to maintain a prominent position in portfolios of income oriented investors, and these stocks continue to share their wealth with satisfied shareholders.

From the end of 1979 through July 2012, dividend-paying stocks in the Standard & Poor's 500 Index carried an annualized total return of 12.1%. That compares with a 10.7% return for nonpayers, according to data from research firm S&P Capital IQ.

MarketWatch did the math and calculated that an initial investment of $10,000 in the dividend bunch would have morphed to a whopping $408,000 over that time frame compared to $271,000 for the nonpaying group.

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