You may have heard of the "fiscal cliff" and know the U.S. is headed toward it. You might know Dec. 31 is the deadline, but what does that actually mean?
John Curley found out from Jill Schlesinger, of CBS Moneywatch, on Seattle's Morning News.
Q: What does it mean to the average person?
A: If taxes go up for a lot of people and government spending drops substantially, then we are likely to see economic growth take a hit. So what economists are saying is that the combination of those tax increases and spending cuts would push the economy back into a recession.
Schlesinger said some people are cavalier about the situation, except that "probably a million more people are going to lose their jobs and it won't be fun for anyone. There will be real human suffering."
Q: You might have accepted that taxes could go up, but exactly by how much?
A: If we go over the cliff and there is no deal, we see that middle income Americans are likely to pay about another $2000 in taxes, average for everyone is $3700.
Schlesinger said The Wall Street Journal broke it down Friday morning: If you make $75,000 and $100,000 annually, that's $3,200 in additional taxes or $270 out of your paycheck every month.
Q: But you have a job and some savings; can't you just ride this thing out?
A: Even those in a stable situation get nervous because "everyone knows someone who is out of work." They think there's a chance they could be in the same situation soon. "It could be you next, by the way, if the economy does fall further," said Schlesinger.
Q: Why can't we blame President Obama?
A: This was in the works. Corporate earnings have not been as good in the last quarter. Why? Because the easy money has already been made. It's really easy to make money when the economy starts to recover and you're working on a skeleton staff. Now it's getting harder to earn a dollar.
It's interesting because we knew that earning season was going to be weak in this quarter. We know that growth is only 2 percent in the US. We know that Europe is a mess and is now back in recession. We know that China is shrinking. We know Japan is probably in recession. We know that India exports are down. The globe has slowed down.
Is there a silver lining?
A: It's going to be OK. Everybody has so much to lose. My guess is they will make a deal. Bernanke is going to keep the printing presses open. The economy is going to be OK, Europe probably won't let Greece exit. We'll be in a slow growth recovery, which is where we should be after having a boom and bust.
"No more Ho-Ho's, my friend."
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