Fiscal cliff

A lot have been said the past few months regarding the fiscal cliff. For those who are not aware of the ongoing battle in DC, the tax cuts on wealthy individuals is about to expire at the end of the year. In case that event, the consequences could be dire on the economy. From jobs lost to stinginess on spending. Congress and the white house are looking for a deal that will benefit all Americans not just a small percentage of Americans. President Obama is seeking to raise income tax rates on individuals earning $200,000 or more a year and married couples earning $250,000 and more annually, while Republicans say that any increase in tax revenues can only come from limiting deductions and other breaks. President Obama said the Republican approach can’t raise enough money without adding to the tax burden of middle-class families. The deadlock between President Obama and republican is around tax raise for the wealthy.

With the economy barely recovering, consumer spending not quite improving, with a job market very unsettled, a volatile financial market and a low confidence on lawmakers, there is an urgent need to help stabilize the economy and avoid any adverse action which could push the economy back into a recession and push consumers to hold to their cash.

The need for a compromise by lawmakers is of the extreme urgency.

Republicans would prefer to keep the taxes from being raised on the wealthy and have more deeper spending cuts on social services such as on health care, on services provided to those in need due to their bad financial health. A raise in tax could send businesses to halt hiring, to cut jobs and minimize investments. Investors in the US are currently in a selling frenzy. Companies like Apple Inc. (NASDAQ:AAPL) and other big corporations have seen a deep drop in their stock price, investors looking to avoid higher taxes on capital are liquidating their positions and moving their money to other low tax rates investments or holding their money.

The real estate market is going to be affected but luckily, only the high end real estate market will be affected directly since wealthy owners are looking to sell their properties to avoid higher tax rates.

President Obama has hinted to willingness for compromise but insisted that Taxes need to be raised on wealthy individual in order for any proposal from congress to be considered.

House speaker John Boehner sent a proposal to President Obam whi was rejected due to a lack of increase in taxes on the wealthy.

Four Republicans who opposed Speaker John Boehner on spending and budget issues won’t return to the Budget or Financial Services committees when the next session of Congress begins in January, according to a House Republican leadership aide. The Republican Steering Committee removed Walter Jones of North Carolina and David Schweikert of Arizona from the Financial Services Committee, said the aide, who asked not to be named. Justin Amash of Michigan and Tim Huelskamp of Kansas were removed from the House Budget Committee, the aide said. We will not rush into assumption, but one could conclude that those four republicans where taken off their positions due to their opposition to the powerful House speaker. The stakes are high for republicans, their refusal for higher tax rates on wealthy is very strong.

Wealthy individuals and businesses pump a lot of money in charities and other non profit organization to help those is need. A higher tax rates will translate into a reduction of money flown into non-profits and charities. This would lead to fewer resources for those in need, job loss and dire social consequences in addition to the financial consequences.

On the other hand, with the government in need of money to sustain the country economy and fund more social project, there is need to raise capital. Middle class, individual making less than the wealthy, small businesses cant afford to pat any higher tax rates, they cant afford lose the social services offered by the government such as Medicare and other services. Spending has already been cut in multiple social services, states and cities have seen longer lines at their doors and have found it difficult to raise more capitals. Some states have even seen an exodus of their resident to other more financially attractive states.

The financial market and the high end real estate market will be hit but there is a high influx of much needed foreign money. Wealth foreigners are spending more money in the US, buying real estates and investing in the US.

Even though an increase in tax could lead to job loss and other financial consequences, the refusal to raise taxes will have dire consequences on average Americans, on American children and the American dream. The wealthy might just have to settle with higher rates.

This article was written by Kadjolo Coulibaly, Managing Partner at Kdl Financial LLC