English: A closeup of the fireball and mushroo...

Mushroom cloud (Photo credit: Wikipedia)

Patrice Hill of the Washington Times makes a very good point:  the of the so-called “fiscal cliff” – Taxmageddon – is already being felt in the economy. People are frightened about the future, and so they are hunkering down.

And it’s no wonder. Here’s what the “cliff” looks like:

  • reductions in itemized deductions and personal exemptions
  • increases in taxes on capital gains and dividends
  • the marriage penalty returning
  • estate tax reinstated
  • increase in the payroll tax
  • cuts in benefits
  • child tax credit cut in half
  • 10 percent cut in military
  • 8 percent cut in discretionary government

And these are just a few of what happens on January 1st if Congress does nothing about them.

Please understand that this is not a plea for Congress to “do something”! It’s just an iteration of what people are concerned about, and it’s slowing the economy:

Businesses frequently cite uncertainty about what will happen with $600 billion in government cuts and expiring tax breaks scheduled to start taking  effect Jan. 1 as their reason for refraining from hiring or spending on  facilities and equipment. Reports make it clear that this uncertainty contributed significantly to the economic slowdown in the spring and summer as  well as to a continuing slump in manufacturing…

Ward McCarthy, an analyst at the brokerage firm Jefferies and Company, explained:

The primary catalyst for the slowdown in the has been dysfunctional fiscal policy…

The closer the politicians take the to the edge of the cliff, the greater will be the associated anxiety and uncertainty that fiscal policy will  generate an economic calamity, and the more damage that will be done…

As anxiety and uncertainty about the fiscal cliff have increased, businesses  have made the prudent decision to delay investment decisions.

The lame duck session following the election only adds to the uncertainty and anxiety. The debt ceiling and the slowdown in the Eurozone aren’t helping either. Investors and entrepreneurs are sitting on the hands – and their capital – waiting to see what happens.

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