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4 Fiscal Cliff Insights From Financial Bloggers

FiscalCliffToday’s guest article comes from Miles Young

There’s no doubt that the fiscal cliff situation has been described in confusing and sometimes contradictory terms by the media. So, the best way to understand the fiscal cliff is to get insights directly from financial experts who can break it down for those of us who aren’t finance gurus. Students in finance should take note, as these insights directly affected the job market for recent graduates.

1. The Fiscal Cliff Risked Recession

According to Jeff Macke, the failure to reach a deal on the Fiscal cliff could have led to serious consequences for the economy. The 500 billion dollars in government spending cuts as well as tax increases that could have happened as a result of the standoff could have been a nontrivial problem. As a result of this standoff, some of the following effects were possible:

  • Tax hikes for Individuals and Businesses.
  • Bush-era Tax Cuts and Obama’s Payroll Tax Cuts going away
  • Military, Domestic, and Federal programs slashed
  • Tax rate for Dividends for investors could’ve risen as high as 40%

These individual consequences could have added up to another recession according to some experts. Since the previous tax cuts involved bolstering incomes, if they’d been slashed, people would’ve had much less disposable income to put into the economy, resulting in recession.

2. Investors Who Don’t Panic Better Survive Fiscal Cliffs

Experts like Bill Mcnabb advise investors to not get too flustered by headlines such as those that happened during the fiscal cliff. Short-term changes in the news and in fiscal problems in the country are just that, short-term. Mcnabb told investors to “Keep calm and carry on” during the fiscal cliff. The potential rise in taxes for any type of business transaction won’t be as potentially catastrophic as making poor decisions because of panic based on the headlines.

3. The Fiscal Cliff Deal Didn’t Affect Spending Cuts

The current issue regarding spending cuts is called “Sequester,” and it’s being dealt with now because the fiscal cliff deal didn’t address spending cuts originally. The fiscal cliff concerned only the revenue side of the equation, specifically how to deal with taxes and other related governmental incomes.  As a result, a whole new debate occurred after March 1st about which types of spending should be cut and by how much, pitting Democrat versus Republican in a show down once again.

4. Fiscal Cliff Deal Was a Stop Gap

The last minute agreement for the fiscal cliff deal helped ward off the worst of the bad effects that could’ve resulted if the deal hadn’t been struck, but it also had serious limitations. According to Russ Koesterich, the economy should continue to improve this year, but the GDP growth won’t get higher than the 2 percent growth that’s happened previously. Also, the deal only extended a freeze on spending cuts by 2 months, unemployment benefits to a year, and a freeze on Medicare benefit cuts to a year.

Overall, those who have an accounting bachelors degree or other training in finances will be the most able to fully understand the fiscal cliff. They will also be the best equipped to deal with the continually evolving situation that springs out of it in the U.S.

Image via Flickr by DonkeyHotey

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