A long and illustrious list of leading indicators is signaling that the US economy will remain on a positive track through mid-2013. It is also true that we have been warning our readers for the last couple of years to beware of growing difficulties in the second half of 2013 that will lead us to a recession in 2014.
There is also a significant negative impact on consumers that is quickly coming into view. The “fiscal cliff” includes an expansion of the Alternative Minimum Tax on an additional 26 million US households. The tax is due on April 15, 2013 for income earned in 2012, and the tax bite is $3,700 on average.
That comes to a tax increase of $96.2 billion in April 2013 that most middle-class Americans will never see coming. It has not been withheld from paychecks, and no warning has gone out. The average refund is $3,000, so Joe and Jane Average are going to have to come up with $700 when they were expecting to receive $3,000 for other uses. Those other uses often include catching up on winter heating and utility bills.
There will be a large sucking sound in the US economy in April if Congress does not act to fix this problem. They traditionally pass a temporary annual patch to avoid the problem, but the politics of the election year and the fierce debate over the other aspects of the ‘fiscal cliff’ may keep a patch from coming in time.
Please note that this train wreck can happen no matter who wins the presidential election. The real concern is in Congress and our having to trust that they will do what is “right” in time to stave off this disaster.