If you’ve been following the news lately you’ve no doubt heard the term “Fiscal Cliff” mentioned numerous times. Now that the presidential election is over discussions are heavily picking up on what to do about this problem.
What is the Fiscal Cliff?
In short, the Fiscal Cliff is when spending cuts and a bunch of tax increases are all scheduled to occur at the same time early next year. Why is this a big deal? Most experts believe the timing and magnitude of these changes will have a dramatic impact on the economy and likely pull us back into a recession (if not depression).
I’m not going to go through all the changes in great detail. There are plenty of articles that cover them in depth and provide a better explanation than I could, so I’ll just highlight them for you.
- Bush income taxes will expire. Originally set to expire in 2010, they were extended because of the economy. Most taxpayers will see an approximate increase of 3%
- Increased taxes for the Affordable Care Act (Obamacare)
- Expiration of the payroll tax holiday – we’ll end up paying 2% more in social security taxes
- Federal budget cuts begin – automatic reduction in spending that was put into place during the debt ceiling issue last year
Should We be Concerned?
Overall, I’ve found that most of the news and media outlets are of the opinion that it’s unlikely we’ll be dropping off the Fiscal Cliff early next year. There will likely be some steps taken by our government that prevents these changes from occurring all at the same time and sending us into another recession. This is a big focus on Washington D.C. right now with the president already planning for talks at the White House this week. No one knows for sure what the outcome will be and we’ll just have to see how this plays out in the weeks ahead.
What Can We Do About the Fiscal Cliff?
In the meantime, what can we do as Americans and Christians? Our hands aren’t exactly tied behind our backs.
Pray and Trust God
We should pray for our leaders and that they will be able to come to an agreement and solution for the Fiscal Cliff and overall, be able to work together in becoming a more financially responsible nation. God is in complete control. We can find peace and comfort in that and know that He will provide for our needs as mentioned in Matthew 6:34.
Focus on What We Can Control
Our job is to be good stewards of the resources that God has placed into our care. We can play our part by having a balanced personal budget, pay off debt, give generously to our church and save for the future. When we are faced with difficult economic situations it’s important to have savings to fall back on. Make sure your spending plan has a place for all these important areas and that you’re saving for the future.
Stay Informed and Hold Our Leaders Accountable
Finally, we should continue to stay informed. We certainly don’t have to understand all the details behind these tax issues, but at the least, we can understand the overall impacts to our economy and what it may mean to our own paychecks and finances.
It’s also important to understand there are differing opinions in Washington on the policies around taxes and government spending. We need to elect officials that support our values and principles, who can get the job done and hold them accountable to their responsibilities.
Rest assured that God is in control and will provide for our needs no matter how difficult times become. Certainly don’t rush out and change your entire investment strategy unless it’s time for you to make adjustments based on your plan (i.e. getting closer to retirement). Focus on managing your finances wisely and stay informed so that you can react to changes in your own personal budget. Finally, pray for our leaders and government in that they will work together to ultimately serve God as faithful financial stewards.
What do you think about the Fiscal Cliff?