Learning about the Fiscal Cliff and Its Impact on You

By Herman Pool
In Marketing
December 22, 2012

Kat / Vertical Axion

If you’re anything like me, you’ve avoided listening to all of the rumors going around about the “fiscal cliff” and its impacts on the economy. However, you’ve probably learned in your avoidance that it’s important that you know at least something about what’s going to happen if those above us don’t come to some kind of agreement. Here, we’re going to skip out on the rumor mill and just stick to what we know is going to happen – and how it might affect your small business.

So, What is This Cliff, Anyway?

Basically, there are three things that the “cliff” is referencing. The first is all of the tax cuts Bush awarded, then all of the tax cuts Obama awarded, and some long-lasting spending cuts to federal programs.

Bush tax-cuts expiring means that those in all brackets of income will be paying higher income taxes. It also means that if you have children your taxes will increase. Estate taxes will also go up, and so will investment income.

Obama tax-cuts expiring doesn’t mean as much for as many people, but there is one thing to consider – payroll-tax cuts will be going away. It was meant to be temporary, of course, but Social Security payments going up will mean less in your pocket now. However, a tax credit to help students pay for college is also ending, and people who earn more than $250,000 a year will see a significant tax increase as well. There’s also the “alternative minimum tax” that needs to be adjusted this year, else it could raise taxes for those who are just above the poverty line.

Spending cuts are the last important factor to consider. Medicare and Medicaid will be left alone, but programs like unemployment insurance are going to take major hits. Payments to doctors from Medicare are also set to drop.

So what does this mean for you, the business owner?

The answer is pretty complicated, because it depends on what kind of business you’re in. No one knows which government programs are going to be affected, but those companies that depend on government contracts have already seen a gigantic slash in business since agencies have started throttling back projects. Those businesses that depend on things like the Navy for their business are feeling the biggest crunch. Even employees are spooked by the cuts, and many of them are leaving the niche of government-run industries for more stable jobs.

As for small businesses that aren’t dependent on government contracts to survive, most businesses are simply “keeping an eye” on what is going on. Some 70% of business owners surveyed said that they were concerned with the fiscal cliff more than any other aspect of business, even healthcare costs and commodities prices. With the payroll tax alone, taxes go from 4.2% to 6.2%, which can severely affect the cash flow of a business, big or small.

Unfortunately, there’s no crystal ball to help us predict what’s going to happen in less than two weeks – all we can do is wait.




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