Thursday, December 06, 2012

The Mayans, the Fiscal Cliff, Your Bar Tab and YOU

Hold on to these -- you might need them!
You've probably heard that the country is heading toward a fiscal cliff.  Of course, some people see it as less of a cliff and more of a downhill incline or even a bump in the road.  Personally, I see it as the fiscal "perfect storm."  If Congress doesn't act (always a good bet) by December 31st, several things that might independently cause problems for the economy would all happen at once, including:
  • Tax cuts initially championed by President Bush, such as a reduced rate for capital gains, a top tax rate of 35% as opposed to 39.6% and myriad other tidbits generally geared toward higher income individuals would expire. Whether you think they should expire or not, their immediate elimination would certainly cause a bit of an economic kerfluffle.
  • Physicians would see an almost 30% reduction in the amount they are reimbursed for Medicare patients.  OK, yeah, many physicians make a fair amount of money.  But imagine if your income were suddenly reduced by over 25% all because you served a certain population of people.  Would you keep serving those people?  Maybe not.  Would you increase rates for other people?  Quite possibly.
  • Deep and immediate cuts in domestic and defense programs of between 8.5 and 10% (maybe more) would take place.  "Good riddance" some might say -- until it's a program that impacts you, like that national park you were going to visit, or that government sponsored meal service you were hoping for, or that small business loan you were expecting.  And don't get me started on unemployment benefits.
  • Payroll taxes on employees, which were cut as part of economic recovery efforts, would increase from 4.2% to 6.2%.  For a person making $40,000 per year, that's about $30 per paycheck, probably not life-changing, but definitely irritating.  Imagine the impact on bar tabs.  
Incidentally, this bar tab thing is important to me so I did the math.  According to the Wine Institute, on a per capita basis Americans drink about 2.54 gallons or 22 glasses of wine (those are "light" pours) per year.  Now I don't know the average amount for a glass of wine, so I'm going to guess $6, although that's probably high because there's a lot of two buck chuck out there.  If everyone spends 2% less on wine, the over $830 million in revenue!  This could be a wine tragedy of gargantuan proportions.

If you want to know how it might impact you, check out the Washington Post's "fiscal cliff calculator." Just don't freak out at the numbers.  I'm also a fan of their FAQs. 

There are two pieces of good news in all this.  First, it's probably more likely than not that Congress will take some action to forestall the potential devastation.  Although there are some who suggest that going over the fiscal cliff might either a) not be so terrible or b) actually benefit the economy, most feel that they don't want to take the risk of ruining everyone's holiday season by bringing on economic Armageddon.

Second, and perhaps more important, according to the Mayan calendar the world will end on December 21st.  So it's all a moot point anyway.  And just in case the Mayans were wrong, the economic boost from all the end of the world parties might just keep the economy afloat until we can figure this thing out.