019 WF: We Didn’t Fall Off the Fiscal Cliff!

WealthFast Podcast show

Summary: We didn't fall off the fiscal cliff! Hooray! **Didn't-fall-off-a-cliff-dance!** But don't break out the champagne just yet. There's still a lot more political bickering and market volatility ahead. Fiscal Cliff What would have happened if we fell off the fiscal cliff? Three things: #1: A round of tax cuts would have expired, resulting in  tax increases across the board, affecting most Americans. This causes customers to spend less, which slows the economy. #2: Also, there would be more entitlement cuts, so people at the lowest rungs have less to spend, also slowing the economy. #3: Finally, there would be massive cuts to government services and industries, meaning the government would be providing fewer jobs, instituting hiring freezes, and creating furloughs. This puts less money in government worker's pockets, which also slows the economy. Now that we avoided the fiscal cliff: Government workers, ranging from Pentagon officials to DOT and DOE bureaucrats, won’t see furloughs or job cuts. The tax increase affects only the top 1 percent (although that affects many small businesses and could result in unemployment. Tune into our podcast to hear why.) The employer-paid payroll tax increases from 13.3 percent to 15.3 percent, which could also slow down job creation. The long-term capital gains tax also increases 3.8 percent, in the form of a Medicare tax. That's bad news for investors. The fiscal cliff compromise helps the feds make more money, reducing the deficit. That's good. But it also hurts employers and investors, which is bad for everyone. What's next in 2013? Expect volatility. In the past month, the Dow Jones ranged from 12,600 to 13,400 -- a wide range -- mostly based on investor sentiment about whether or not we’d fall off the cliff. As politicians continue to argue, and investors continue to get spooked/optimistic/spooked/optimistic about what political leaders will do, we can expect to see more volatility. Also, the debt ceiling will also be back on the negotiating table in 2013. That will cause more political bickering, with its subsequent volatility. There's a slow-but-steady uptick in housing prices, and job growth, which is good. But new taxes on employers or market volatility can derail that progress. We're seeing low bond yields, which are a sign of caution. It means investors are keeping higher-than-average percentages of their portfolios in the safer fixed income asset classes (like Treasuries) and out of riskier classes such as equities and commodities. For more news on the fiscal cliff, debt ceiling and 2013 predictions, tune into the latest podcast.