what is the fiscal cliff

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The Fiscal Cliff Is Set To Clobber The Middle Class With Nearly 50% Tax Rates

By , Chief Investment Strategist, Money Map Report -

If I didn't know any better, I'd think there's a small but growing group of people in Washington who think it would actually be good if we temporarily went over the fiscal cliff.

I say that because I am seeing a smattering of articles recently suggesting that somehow going over the cliff "won't be all that bad" or that we're "really just talking about cuts that need to happen in the first place."

President Obama seems to think the same way judging by the fact that he's dug in his heels, telling the GOP there will be no fiscal cliff bargain that doesn't include tax hikes.

Now noted budget hawk Republican Senator Tom Coburn has broken ranks, noting that he'd rather see rates rise because that "will give us a greater chance to reform the tax code and broaden the base in the future."

I find that to be an absolutely appalling argument given how much further the president's proposals will squeeze the middle class.

As Fox Business Network's Gerri Willis, an expert on consumer and personal finance issues, recently pointed out to me, the average middle class tax rate is already 43.12%, according to the non-partisan Tax Foundation.

Beyond that, Willis says if we do go over the cliff, the average middle class tax burden jumps to nearly 50%.



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Here are the Hefty Fiscal Cliff Automatic Spending Cuts

By , Money Morning -

While much of the fiscal cliff debate has focused on possible tax increases, failure to reach a deal to avert the cliff could bring massive automatic spending cuts.

Barring an agreement between U.S. President Barack Obama and Congress, $1.2 trillion of spending cuts over the coming decade would begin taking effect Jan. 2.

The automatic spending cuts, known as "sequestration" - a result of Congress's 2011 negotiations to raise the debt ceiling - would total $109 billion in 2013, CBS News reported.

Here's a closer look at where the cuts would be targeted.

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Fiscal Cliff 2013: Why It's Looking Like No Deal

By , Contributing Writer, Money Morning -

Expectations have changed lately regarding fiscal cliff 2013. It's looking increasingly likely that we are going over it.

U.S. Treasury Secretary Timothy Geithner, U.S. President Barack Obama's lead delegator on the fiscal cliff talks, told CNBC the Obama administration is "absolutely" prepared to go over the cliff if Republicans don't change their tune on taxes.

President Obama and Republican House Speaker John Boehner on Wednesday, along with Congressional Republicans, reiterated their stance on the fiscal cliff. No compromise was reached, with just 25 days remaining before zero hour.

President Obama maintains there could be a quick deal if Republican lawmakers withdraw their resistance to raising taxes for individuals earning more than $250,000 a year, swapping for concessions on federal spending cuts and entitlement reforms.

"If we can get the leadership on the Republican side to take the framework, to acknowledge the reality, then the numbers aren't that far apart," the president told "The Business Roundtable."

He added, "Another way of putting this is we can probably solve this in about a week. It's not that tough, but we need that conceptual breakthrough."

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How the Fiscal Cliff Deal Threatens Grover Norquist's Tax Pledge

By , Money Morning -

Washington doesn't need any more hurdles than it already has in reaching a fiscal cliff deal.

But one man, and the power he holds over our elected officials, is trying to prevent a deal.

I'm talking about Grover Norquist, the founder of Americans for Tax Reform, and his tax pledge.

Norquist is both hailed and loathed for his "no new taxes pledge." It commits to never raising marginal income tax rates on businesses or individuals, and opposing any net reduction or elimination of deductions andcredits, unless matched dollar-for-dollar by further reducing tax rates.

Norquist's tax pledge has been signed by almost every Republican in office. Only four current House representatives and six senators have not signed it.

But lately, those who signed on have started to change their minds concerning the 20-year-old pledge.

You see, U.S. President Barack Obama has made clear that higher tax rates for the wealthy must be part of a fiscal cliff deal - something 95% of Republicans have pledged to oppose.

And now the need for a fiscal cliff deal has caused some high-ranking Republicans to reject the pledge, threatening to loosen Norquist's ironclad grip on the party's stance toward taxes.



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Everyone's Getting Antsy with No Fiscal Cliff Deal in Sight

By , Money Morning -

After another day and still no progress on fiscal cliff discussions, many are beginning to think we might not see a deal before the end of the year, or even at all.

Republicans on Monday proposed their counter-offer to U.S. President Barack Obama's initial deal and, like his, it was basically the same plan previously offered.

This has led many, including Bank of America Corp. (NYSE: BAC) CEO Brian Moynihan, to wonder how far apart the two sides really are, and how long the effects of delaying a deal will be felt.

"I'm more concerned about business behavior slowing down than I am about consumer behavior," Moynihan told CNBC this morning. "I think we're in danger if this thing strings out into 2013 that you could start to have problems of what 2014 would look like."

The Republican-proposed deficit reduction deal, which was quickly rejected by the White House, would save $2.2 trillion over the next decade by generating an additional $800 billion in tax reform, but not by raising rates, and saving $300 billion by cutting discretionary spending, $600 billion in "health savings," $200 billion in changes to the consumer price index and another $300 billion in mandatory spending.

This is in stark contrast to the president's offer, and so far it seems neither side will budge from their original positions and even begin to compromise.

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Don't Bet on a Fiscal Cliff Deal

By , Contributing Writer, Money Morning -

Fresh reports reveal that fiscal cliff talks have not resolved a thing as Democrats and Republicans continue to haggle over a deal ahead of the Dec. 31 deadline.

"Right now, I would say we're nowhere, period. We're nowhere," House Speaker John Boehner, R-OH, stressed on Fox News.

Last week it wasn't clear if a deal would be reached. This weekend the chances looked downright dismal.

Boehner, who is spearheading negotiations with U.S. President Barack Obama, told reporters last week that "no substantive progress has been made in the talks between the White House and the House over the last two weeks."

The Speaker's meetings last Wednesday with the president and Thursday's with U.S. Treasury Secretary Timothy Geithner were also fruitless, Boehner acknowledged. By Friday, Boehner said both sides were at a stalemate.

"I've got to tell you that I'm disappointed in where we are and disappointed in what's happened over the last couple of weeks," Boehner admitted.

He detailed on Fox News, "They won the election, (but) they must have forgotten that Republicans continue to hold the majority in the House. But the president's idea of a negotiation is, "Roll over and do what I ask.'"

The two sides, just rows apart on Capitol Hill, might as well be thousands of miles away.

Congressional aides, tracking the back-and-forth negotiations, shared with the Washington Post that it is growing increasingly more likely that no deal will be inked in time to avoid the fiscal cliff.

Or, as Sen. Lindsey O. Graham, R-S.C., said on CBS's "Face the Nation," "I think we're going over the cliff."



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Obama's Fiscal Cliff Plan Sends Message to GOP: You Lost

By , Associate Editor, Money Morning • @DavidGZeiler -

Flush with confidence after winning re-election by a convincing margin, U.S. President Barack Obama delivered a fiscal cliff plan heavy on Democratic ideas and light on compromise.

U.S. Treasury Secretary Timothy Geithner presented the president's fiscal cliff proposal to GOP Congressional leaders yesterday (Thursday).

It would raise $1.6 trillion via taxes, primarily on those making $250,000 a year and up, while delaying talks about spending cuts until later this year. The plan also proposes about $50 billion of assorted stimulus spending, which would include another extension of unemployment benefits, infrastructure, and mortgage relief.

Republican leaders were said to have literally laughed during Geithner's presentation.

"We can't move any closer to them because they're not even on our planet," one GOP aide told Reuters. "It was not a serious proposal."

No Compromise in Obama Fiscal Cliff Plan

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.

Republicans and Democratic leaders have both acknowledged the importance of dealing with the fiscal cliff, and even made some statements in recent weeks hinting that they were moving toward compromise.

That ended abruptly on Thursday.

The president's fiscal cliff proposal did not change even slightly since it was initially pitched to Republicans several weeks ago.

"The day after the White House meeting, we gave them our framework," a GOP aide told the Huffington Post. "It took them 10 days for them to give us theirs, and it didn't reflect any of the conversations we've had since then."

Even many economic experts were startled by the one-sidedness of the proposal.

"What's been put forward is insulting in terms of its arrogance," said Money Morning Capital Waves Strategist Shah Gilani. "More unmarked stimulus spending? No accountability as to which sinkhole it will fall into, is an abomination. Where are the other cuts? Where is the spending discipline now and into the future? Oh, we're supposed to believe it's going to get here? Santa's coming too, right?"

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Avoid the Fiscal Cliff with These Three Investments

By , Money Morning -

The Bush-era dividend tax reduction is among the old tax cuts that could become a new increase if we "fall off" the fiscal cliff.

But there's good news for dividend seekers...

The fiscal cliff can be dodged to some extent by establishing a bias toward international dividend stocks. Remember, the fiscal cliff is a U.S. phenomenon and many international companies have diverse, global shareholder bases. In other words, just because a U.S. telecommunications stock is suffering due to fiscal cliff fears, it does not mean a European or Latin American equivalent will be treated the same way.

Just look at these three international dividend plays...

Stock Market Today: GDP Revised Higher, but Data Still Ugly

By , Money Morning -

Today the U.S. Commerce Department reported its second estimate for third-quarter GDP, and at first glance the 2.7% revision seems to indicate growth after the second quarter's dismal 1.3% level.

Yet, today's number missed estimates which called for 2.8% growth, and was driven largely by government spending which accounted for 0.67 percentage points of the reading and inventories which contributed 0.77 percentage points. This was the first positive reading for government spending in over two years and the increased inventories suggest businesses could limit production in the fourth-quarter, especially with the looming fiscal cliff.

Further analysis - of household purchases and consumer spending - looks even worse...

Why Warren Buffett Doesn't Fear the Fiscal Cliff, and How He'd Fix it

By , Money Morning -

Warren Buffett, CEO of Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B), is doubtful that Congress can get its act together and compromise on the fiscal cliff before the Dec. 31 deadline.

However, Buffett expects a deal to be reached shortly after that deadline, and he is not concerned with going over the infamous fiscal cliff.

"The fiscal cliff does not enter into my long-term investment decisions... and it wouldn't surprise me if we go past January 1," Buffett said on CNBC's Squawk box Wednesday morning. "[If that happens] I don't think the world will come to an end."

Buffett is in the minority with that sentiment, as investors have been fretting over the fiscal cliff since the election and will continue to do so until Washington finalizes a deal.



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Fiscal Cliff Meeting: Here's What U.S. CEOs Expect from Obama

By , Contributing Writer, Money Morning -

In what looks like a "Who's Who Among America's Corporate Leaders," some of the biggest and best U.S. CEOs are meeting with U.S. President Barack Obama today (Wednesday) in Washington to discuss the fiscal cliff.

With just 35 days left for congressional lawmakers to hammer out a deal before Americans face the largest tax increase in history, the pace has quickened in the race to avert falling off the cliff.

Those present at White House meeting included business leaders in healthcare, finance, commodities, entertainment, construction and consumer products.

Among the attendees: Lloyd Blankfein, Goldman Sachs Group Inc. (NYSE: GS); Muhtar Kent, The Coca-Cola Co. (NYSE: KO); Marissa Mayer, Yahoo! Inc. (Nasdaq: YHOO); Doug Oberhelman, Caterpillar Inc. (NYSE: CAT); Ian Read, Pfizer Inc. (NYSE: PFE); and Patricia Woertz, Archer Daniels Midland Co. (NYSE: ADM).

U.S. companies want Washington to act now as many are already feeling the pre-effects of the fiscal cliff. None want to experience the full impact, which the Congressional Budget Office warns will thrust the U.S. economy back into recession next year.

In anticipation, scores of businesses have laid off workers and shelved expansion projects. The uncertainty, Bank of America Corp. (NYSE: BAC) CEO Brain Moynihan recently explained, is holding back the nation's recovery from the Great Recession.

Putnam Investment CEO Robert Reynolds recently told The Wall Street Journal, "The greatest stimulus is certainty. You don't know what your tax rate is next year, you don't necessarily know what you're going to be paying in health care, capital gains, dividends. They all have a tremendous impact on the way people act."



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OECD Sees These Threats Beyond Fiscal Cliff 2013

By , Money Morning -

At a press conference announcing the release of its new Economic Outlook report, the Organization for Economic Cooperation and Development (OECD) issued a stern warning to the U.S. to resolve the impasse over fiscal cliff 2013 or risk falling into recession, possibly dragging the rest of the world economy down with it.

"The US "fiscal cliff,' if it materializes, could tip an already weak economy into recession, while failure to solve the euro area crisis could lead to a major financial shock and global downturn," said OECD Secretary-General Angel Gurría. "Governments must act decisively, using all the tools at their disposal to turn confidence around and boost growth and jobs, in the United States, in Europe, and elsewhere."

The OECD expects growth in the U.S. to decline from 2.2% in 2012 to 2.0% in 2013 "provided the "fiscal cliff' is avoided," then increasing to 2.8% in 2014. U.S. unemployment is expected to decline from 8.1% in 2012 to 7.5% in 2014, using a harmonized measure of unemployment that allows comparisons between countries.

Although the consequences of failing to resolve fiscal cliff 2013 loom large, the European debt crisis was cited as the main risk to global economic growth. Gross domestic product (GDP) growth in the Eurozone is expected to improve from -0.4% in 2012 to -0.1% in 2013 and a positive 1.3% in 2014.

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This New Fiscal Cliff Report Issues $200 Billion Warning

By , Contributing Writer, Money Morning -

A fresh fiscal cliff report from the White House today (Monday) has predicted that falling off the cliff will deliver a damaging blow to U.S. consumer spending.

The report from the White House's National Economic Council and Council of Economic Advisers cautioned that consumers will rein in spending next year to the tune of some $200 billion should Congress let taxes increase for middle class American families come 2013.

"American consumers are the bedrock of our economy, driving more than two-thirds of the overall rise in real GDP over 13 consecutive quarters of economic recovery since the middle of 2009. And as we approach the holiday season, which accounts for close to one-fifth of industry sales, retailers can't afford the threat of tax increases on middle-class families," the report stressed.

The report is the latest ammo that U.S. President Barack Obama is using to sway lawmakers to go along with his plan to extend tax cuts for American families making less than $250,000 a year, while raising tax rates on the wealthiest 1%, which Republicans vehemently oppose.

"The president has called on Congress to act now on extending income tax cuts for 98% of American families and not hold the middle-class and our economy hostage over a disagreement on tax cuts for households over $250,000 per year. The Senate has passed this bill and the president is ready to sign it," the report read.

With the Dec. 31 fiscal cliff deadline quickly approaching, Democrats and Republicans continue to butt heads over tax issues, as well as government spending and entitlement expenditures. If the two sides don't come to some kind of deal and we fall over the fiscal cliff, a 2013 recession is likely.

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9 Ways To Save Your Portfolio From The Fiscal Cliff

By , Money Morning -

Many investors believe that a fiscal cliff "dive" is inevitable.

It's hard to disagree.

Our politicians have refused to do anything but kick the can down the road to date.

The blame game started mere days after the election and it's highly unlikely that we'll see anything other than more foolishness out of Washington.

So what do you do about it?

Simple: First, you need to protect your savings from getting destroyed by the fiscal insanity. Second, you should look to reposition your portfolio with the goal of making a hefty profit. We call this one-two punch... Survive & Conquer the Fiscal Cliff.

In a minute we're going to show you exactly how to do both...

But first, here's why you need to pay very close attention, even if a miracle happens and Washington comes to an agreement.



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