The Mayan calendar "end of times" prediction scheduled for Dec. 23, 2012, might not be all bad when compared and contrasted with some of the other predictions associated with Taxmageddon and the fiscal cliff on the horizon. We have seen and read much about the coming complications and potential problems with tax returns this year, Taxmageddon and other U.S. economy woes and dangers from the impending fiscal cliff -- but what does it all mean?
Excluding the Mayan calendar, let's take a look at the important parts of Taxmageddon and the fiscal cliff, and highlight the overlapping parts, differences and implications.
The term "fiscal cliff" recently highlighted by a host of economists, political commentators and other experts is a term used to describe a host of possible tax increases (part of Taxmaggedon) and large government spending cuts that are due to take effect at the end of 2012 and early 2013. In total, if everything goes as currently scheduled, measures set to automatically raise individual taxes and slash government spending will be implemented -- the combination of which could severely damage the economy.
The tax increases both for 2012 and 2013 and their consequences fall under Taxmageddon, which I covered a few weeks ago. For 2012, tax refunds may be smaller, and starting in 2013, taxes will go up and paychecks will go down by some estimates about $1,000 for individuals and as much as $4,500 for a two-earner family with six-figure income. Secondly, the budget cuts and spending reductions are the result of the austerity measures from last year that force automatic spending cuts if other agreed to budget reductions were not met (which so far have not been), and the spending cuts are enormous.
So, in a nutshell, Taxmageddon is the tax increases, less paycheck money and smaller tax refunds for millions of Americans in the next few weeks. At the same, time hundreds of billions of dollars in forced government spending cuts will affect thousands, possibly millions, of other taxpayers and government projects slowing capital investment and economic growth -- fiscal cliff indeed.
So what is going to happen? The situation certainly is poised for a bad outcome as both Taxmaggedon and the Fiscal Cliff seem to be on a fixed course and timetable. However, there is much agreement on both sides of the political spectrum that compromise is needed, and a solution must be reached -- and reached soon.
So in the coming weeks, be especially vigilant for proposals of compromise and even possible agreement on a path and plan to resolve both Taxmageddon and the fiscal cliff, most likely right after the election on November 6. If agreement is not reached in a few weeks after the election, and any final decision takes longer, that "end of the world" event with the Mayan calendar might not be so bad.