Fiscal Cliff 2013: Politicians Playing Chicken with Your Money on the Line

Americans are caught in the crossfire as U.S. policy makers continue to battle over "fiscal cliff 2013."

Republican and Democratic lawmakers remain deadlocked over what to do regarding the expiring tax a nd spending cuts, but its taxpayers' money that's at stake.

On Dec. 31, if no action is taken, Bush-era tax cuts will run out, thrusting the struggling U.S. economy back to the lofty Clinton-era tax rates. Plus, steep spending cuts will kick in, hitting a broad range of sectors from education to national defense.

U.S. President Barack Obama and his administration want a tax extension for those making less than $250,000. They are also calling on the top 2% of earners to pa y higher rates on income exceeding $250,000, maintaining it's their duty to do so.

Republicans, however, want the tax breaks to remain intact for all.

So it goes, and so it has gone for months. If Democrats get their way and let some $600 billion worth of tax hikes and spending cuts go into effect in January, it will drive the nation back into a recession. But that can be avoided if Republicans back off on their opposition of higher taxes for our nation's wealthiest.

While the two parties clash, Americans of all tax brackets are stuck in a wait- and- see mode--waiting for action and not seeing much except their nest eggs getting fried.

Democrats Holding Out Until Fiscal Cliff 2013

President Oba ma's team is ready to take the tax fight into 2013, despite fiscal cliff warnings, if it means they stand a better chance of winning this battle.

"If we can't get a good deal, a balanced deal that calls on the wealthy to pay their fair share, then I will absolutely continue this debate into 2013 rather than lock in a long-term deal this year that throws middle-class families under the bus," Sen. Patty Murray, D-WA, voiced on July 16 at the nonprofit public policy Brookings Institution meeting.

If no compromise is reached before 2013, Democratic leaders think they'll have even more leverage in the New Year when they again propose keeping high taxes for the wealthiest taxpayers.

"If middle-class families start seeing more money coming out of their paychecks next year -- are Republicans really going to stand up and fight for new tax cuts for the rich? Are they going to continue opposing the Democrats' middle-class tax cut once the slate has been wiped clean? I think they know that that would be an untenable political position. And I hope this pushes them to come to the table with real revenue now before being forced to the table if we don't get a deal before the New Year," said Murray.

Plus, if Republicans agree to reduce middle class taxes in the New Year after the cuts expire, and President Obama is still in office, he can say he cut taxes under his administration.

Republicans meanwhile are wagering that they will run both the House and Senate, and could veto any presidential measure if President O bama serves a second term.

Either way, it's your money on the line - and the U.S. economy's recovery at stake.

Fiscal Cliff Will Hit Jobs, Income

If fiscal cliff 2013 does come to fruition, the implications will be huge.

A fresh report from the American Action Forum shows that between 2.8 million and 10 million jobs could be lost, at a time when unemployment is already at an unhealthy 8.2%.

Furthermore, falling off the cliff would decrease the odds by nearly 20% that small businesses would add workers.

"This is an enormous hit "[to the economy]," Douglas Holtz-Eakin, American Action Forum president and former director, said in an interview with Yahoo's Daily Ticker.

"[F]ailing to extend 2001-2003 tax cuts would not only increase taxes on every single taxpayer in the country but would also put millions of lower class households who are not currently paying taxes back on the tax rolls at a rate of 15%, and restore the marriage penalty."

U.S. Federal Reserve Chairman Be n Bernanke warned in a testimony to Congress last week the U.S. economy is fragile and on the cusp of a slowdown, citing decelerations in economic activity. Bernanke cautioned Congress to "do no h arm" when attempting compromise on tax increases and spending cuts.

"The results (of failure to compromise) are bleak and clear-cut," George Mason University Professor Stephen Fuller warned in a re port last week.

Investing Before the Fiscal Cliff

The looming economic upheaval has spurred uncertainty in the stock market.

Industry experts say the best move now is to stay calm and ride it out until after Election 2012.

Liz Ann Sonders, chief investment strategist at Charles Schwab (NYSE: SCHW), cautioned uneasy investors not to make any drastic moves. Sonders noted there are buying opportunities for long-term investors, adding that markets should stabilize once the election is over.

"We don't suggest investors swing their money around based on a short-term view of what the market is going to do. In the case of U.S. equities, they're quite cheap right now. In this environment, you can get ferocious rallies in the short term," Sonders told US News and World Report.

Click here for five high-value U.S. stocks going for bargain prices.

Related Articles and News: