Explaining The Fiscal Cliff To Members

Credit unions can soothe members' confusion about how looming tax increases will affect their finances.

 
 

Former Washington Post copy editor Phillip Blanchard is right – there’s no need to use that scaremongering word “fiscal cliff” without further explanation. It threatens that everyone’s savings and investments will plummet into the government’s pockets, like pennies into a well. Perhaps that’s true, but members deserve a more thorough explanation.

The phrase “fiscal cliff” has been used in the past to refer to several fiscal issues. It has taken on new life in today’s headlines referring to the deficit reduction measures that kick in on January 1, 2013, if Congress fails to agree on how to better address the deficit. The words gained traction after U.S. Federal Reserve chairman Ben Bernanke described the measures as a “massive fiscal cliff of large spending cuts and tax increases.”

Despite its widespread use in the media, “fiscal cliff” is slang that some economists say is not accurate, and terms like “fiscal slope” or “fiscal hill” would more accurately describe the powerful but gradual impact of the tax hikes and spending cutbacks.

Although the “fiscal cliff” metaphor bantered about today might not be the most perfect description, Americans do need to be aware of how these upcoming changes would affect their wallets – from increased taxes on their stock dividends to increased taxes on their paychecks. Break it down for your members because the changes would indeed be significant and members need to plan.

Explain how taxes will increase for nearly all Americans as federal tax collections would increase by $500 billion in 2013. That's an approximate 20% increase from what they would be if the current tax cuts did not expire. Make sure members are aware that 90% of all households will be affected, with an average tax increase of $3,500, according to the Tax Policy Center, run by the Urban Institute and Brookings Institution.

Congress can delay these tax increases if it reaches a decision in the next month, but encourage your members to prepare for the worst. Help them calculate how they would be affected and recommend ways they could adjust their budget, for example help them identify ways to increase investments or reduce spending. Ask them to consider carefully whether they want their investments to remain in dividends stocks or moved to other investments.

The White House and Congress have only five weeks left to reach an agreement that would stave off the changes. The sooner you help members prepare for changes to their personal budgets, the better. Just try not to add to the confusion with jargon like “fiscal cliff.”

 
 

Nov. 28, 2012


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Comments

 
 
 
  • Thanks for the tips on how to help the members get ready for financial changes.
    Carolyn