If you’ve been following the news at all, you’ve likely heard about the coming “fiscal cliff.” You’re probably wondering what the fiscal cliff is, and how it could impact you (and your wallet). In a nutshell, the fiscal cliff is a combination of tax increases and spending cuts that would occur at the end of the year. This is the result of many years of “kick-the-can-down-the-road” budget-making policies as well as a law-making compromise made last year in order to end the debt ceiling “crisis.” The combination and timing of the cuts and tax increases could pose a large threat to our weak economic recovery and perhaps even cause economic contraction in 2013.
If our elected representatives are able to come up with an alternative plan before we get too far into the new year, some or many of the effects of the fiscal cliff may be mitigated or avoided. I think it is very appropriate to note that broad-based tax increases and cuts in spending are similar (in type, if not in scale) to the austerity policies that are not working out so well in Europe right now.
Many, many Americans could see reduced income if our economy is allowed to go over the fiscal cliff. Thanks to Taxfoundation.org, we have an idea of approximately how the median two-child family in each state would fare if no action is taken (click for full-sized version):