fiscal cliffThe news lately is stacked with references to the "Fiscal Cliff" deal that was finally struck between Democrats and Republicans in Congress.  We all know the basic idea: some taxes were raised here and there, mostly on rich people, and the effect will be that $600 billion of new revenue will start to defray our government's massive deficits. But what does the deal mean for us ordinary folks?  The bill did a number of things, but only three of them will directly impact most Alabamians in debt:

1.  The End of the Payroll Tax Holiday - One of the major parts of the stimulus bills that were passed during the Recession was a 2% cut in the payroll taxes that workers had to pay for Medicare and Social Security.  These taxes are paid partly by workers and partly by their employers.  The workers' portion went down from 6.2% to 4.2%.  This means that for all Americans with incomes less than $113,000 per year, their effective tax rate will increase by 2%.  Though this is only a return to 2007 tax rates, many have become accustomed to keeping the extra $50 or so per month.  For debtors who are just on the edge of being able to pay their bills, this could be the straw that breaks the camel's back.

2.  Unemployment benefit extensions are still extended.  So the period for which you can claim unemployment benefits is still going to be a maximum of 47 weeks (depending on your state).  While the overall economic wisdom of the Unemployment program have been vigorously debated, one thing that is certain is that many in Alabama have come to depend on unemployment benefits to survive temporary bouts of joblessness.

3.  Congress has 2 months to reach a deal on spending cuts.  If Congress' behavior in the past is any indicator, this is a big problem, because there is a chance they will refuse to compromise and allow the big spending cuts to just slam the brakes on our recovery.  We will see what happens in March.  Until then, just prepare for the worst and hope for the best.