Regarding the scenario of going over the Fiscal Cliff -- it would be a very bad thing, indeed, for the nation and for the world.
Below are some news clips -- from the local to the global -- describing what would happen to you and your country.
At the end of this piece, I will tell you what I think is going to happen.
But first, here's a look at what has happened so far in the negotiations:
The Tax Policy Center, a nonpartisan think tank, says that nearly 90 percent of households would be affected if we go over the fiscal cliff completely and no deal is reached.::
A stalemate would have very specific effects on certain groups of taxpayers, such as students, parents and married couples who have benefited over the past decade from certain tax law changes passed under the Bush and Obama administrations.
But the Tax Policy Center says that on average, taxes would go up for every income group, from the poorest taxpayers to the most wealthy:
Tax rates will go up: If no deal is made, taxpayers can expect their tax rate to rise no matter what income group they fall in, said Roberton Williams, senior fellow with the Tax Policy Institute. That’s because previously passed rate cuts would expire.
“Everyone who has taxable income will see a tax increase because of the rates,” Williams said.
Payroll taxes: For the past two years, the employee’s share of taxes paid for Social Security has been set at 4.2 percent instead of the previous level of 6.2 percent. That temporary tax cut would expire without a new deal, meaning almost everyone’s taxes would rise by 2 percentage points.
The Internal Revenue Service says around 30 million additional taxpayers would become subject to the AMT.
Unemployment benefits: About 2.1 million unemployed Americans are scheduled to lose federally funded unemployment compensation if Congress can’t reach a deal.
Analysts expect that the austerity crisis will weaken the economic recovery and quite possibly plunge the United States back into a recession. The CBO predicts that the U.S. economy will shrink by 0.5 percent in 2013, and unemployment will spike up to 9.1 percent from its current level of 7.9 percent, if no fix is passed.
The Tax Policy Center estimates that if we go over the fiscal cliff, the average American will see their tax bill rise by $3,446 in 2013.
Taxpayers making more than a million dollars will, on average, see a $254,000 tax hike, equal to about 11 percent of their income, while taxpayers making between $40,000 and $50,000 will see a $1,700 tax hike, equal to about 4.4 percent of their income.
The downside is that Congress and the White House might not have much time to negotiate a deal in January or February before financial markets start nosediving.
Big bad sequestration — $1.2 trillion of automatic spending cuts, slated to go into effect over the course of nine years, will kick in beginning on Jan. 1. For 2013, that means $109 billion in cuts, half from the national defense budget and half from non-defense spending.
Although federal furloughs and layoffs would not occur immediately... there are plenty of other federal programs that will feel the pain. That includes everything from Pell Grants to Head Start to federal disaster relief to the salaries of federal workers.
No more Doc Fix
Medicare payments to doctors would be reduced by 27 percent, or about $11 billion, because Congress will not have acted to keep the cuts from going into effect, as mandated by another mid-1990s deficit reduction measure.
The big wild card is the stock market and the nation's financial confidence: Would traders start to panic if Washington appeared unable to reach accord? Would worried consumers and businesses sharply reduce their spending?::
Taxes would jump $2,400 on average for families with incomes of $50,000 to $75,000, according to a study by the non-partisan Tax Policy Center. Because consumers would get less of their paychecks to spend, businesses and jobs would suffer.
Americans would feel cuts in government services; some federal workers would be furloughed or laid off, and companies would lose government business. The nation would lose up to 3.4 million jobs, the Congressional Budget Office predicts.
"The consequences of that would be felt by everybody," says Ben Bernanke.
Budget cuts of 8 percent or 9 percent would hit most of the federal government, touching all sorts of things from agriculture to law enforcement and the military to weather forecasting. A few areas, such as Social Security benefits, Veterans Affairs and some programs for the poor, are exempt.
On 1 January, tax cuts from the George W Bush era expire and huge spending cuts kick in. Some $607bn of cuts and tax rises are planned, including:::
Reductions in the defence budgetThis need not spell immediate disaster. But over time, it would have a painful effect on the US economy, which is recovering but remains weak. Many observers say these measures would amount to a 4-5% cut in the country's output.
The end of a 2% payroll tax cut
Changes to allowances for Medicare - medical care for the elderly
Reductions to some family income credits for the poor
The so-called "alternative minimum tax" extending to many taxpayers
The end of long-term federal unemployment benefits - at about $300 a week - which immediately cuts off about 2 million people
Unemployment is just below 8%. It could start to climb again as businesses - dealing with more tax and a less rosy future - cut back on hiring.
The head of the US central bank, Ben Bernanke, has said that going over the cliff could send the economy "toppling back into recession". Mr Obama has also said that in the past.
The Congressional Budget Office has predicted the US will fall into recession and unemployment would jump more than 9% in 2013 if leaders can't agree a way out of the cliff.
JP Morgan economist Michael Feroli has estimated that more than $550bn could be sucked out of the economy and the US-based Tax Policy Center (TPC) estimates that the average annual tax bill for each American would rise by $3,500. The super-rich face an average tax rise of $120,500 a year, while the lowest earners will see an increase of about $412.
Another recession in the world's largest economy would be a huge blow to the rest of the world, which is not exactly problem-free.
The Congressional Budget Office estimates that the automatic spending cuts and tax increases outlined in the Budget Control Act of 2011, often referred to as the “fiscal cliff”, would decrease 2013 GDP by more than 4%. To put this in perspective, the average decrease in GDP during the five recessions occurring between 1980 and 2001 was 1.65%. With second quarter GDP increasing a meager 1.5% a 4% reduction in 2013 GDP would put the American economy squarely back into a recession, a deep recession.::
The most obvious group to be impacted by Congress’ inaction would be regions and cities whose economies rely heavily on federal payrolls. George Mason University recently estimated that more than 615,000 federal jobs would be cut as a result of Congress’ inaction.
While cities and regions reliant on federal payrolls are obvious places to see the likely effects of going over the “fiscal cliff”, the impact on the private sector would be surprisingly significant as well. According to the same George Mason University study, while federal payrolls would be cut by an estimated 615,000 jobs the private sector would see more than 1.5 million jobs cuts – far more than the government sector. This equates to more than 70% of the estimated job losses coming from the private sector.
Cutting $50 billion out of the military budget annually would have very real consequences on private sector defense-related employment. It is estimated that Virginia alone has more than 900,000 defense-related jobs – that is 20% of Virginia’s total, non-farm employment. Southern California, San Antonio, Colorado Springs, Tampa and other cities also rely on defense-related jobs.
When the government makes cuts, it also impacts non-defense related companies including their payrolls. Consulting, healthcare, engineering services, communications equipment, professional services, systems integration, telecommunications, information technology and construction companies receive significant dollars through federal contracts. Many non-defense related companies receive significant dollars from the government.
In addition to job losses, the “fiscal cliff” would negatively impact the economy through automatic tax increases on individuals that would reduce discretionary income. According to the Tax Foundation and as reported by Jeff Cox of CNBC, individuals could pay up to $5,700 more a year in taxes if the “fiscal cliff” is not averted. While Mississippi consumers would see the smallest average increase at $1,300 more than half the states would see a minimum $2,000 increase.
What I Believe Will Happen
A stunted agreement will be reached before January 1st, for the sake of Wall Street.
It might not prevent recession during a time when austerity will severely damage a fragile economy, but it will neutralize the worst of the fallout. None of these pending issues were necessary at this very moment. They are all absurd political weapons and deliberate sabotage in a partisan fight that has absolutely nothing to do with the health of the nation's economy.
To wit: These stories just in:
GOP Gives Up on Social Security Cuts
WASHINGTON — Negotiations over a last-ditch agreement to head off large tax increases and sweeping spending cuts in the new year appeared to resume on Sunday afternoon after Republican senators withdrew a demand that any deal must include a new way of calculating inflation that would lower payments to beneficiary programs like Social Security and slow their growth.
Deal reached to avoid spike in milk prices
WASHINGTON -- The top leaders in both parties on the House and Senate Agriculture committees have agreed to a one-year extension of the 2008 farm bill that expired in October, a move that would head off a possible doubling of milk prices next month.
Senate Agriculture Committee Chairman Debbie Stabenow indicated that the House could vote on it as early as Sunday evening. The agreement to extend current farm law until next October was reached as negotiators hit a snag on averting a broader fiscal cliff combination of higher taxes and spending cuts Jan. 1.
Agriculture Secretary Tom Vilsack said Americans faced the prospect of paying $7 for a gallon if the current dairy program lapsed and the government returned to a 1948 formula for calculating milk price supports.
What do you think will happen?