Experts say there are ways to cushion the fall over the fiscal cliff if Congress and the Obama administration fail to reach a deficit reduction deal at the end of the year.
While business executives and politicians panic over tax hikes and spending cuts that could send the economy into a new recession, experts say the Obama administration has access to a number of temporary fixes including freezing taxes deducted from payroll checks and shifting the budget around to soften the blow on federal spending cuts, the Washington Post’s Zachary Goldfarb reports.
The White House has not detailed how it plans to handle the massive spending cuts and tax hikes scheduled to take effect next year, barring inaction from Congress. It previously delayed allowing the Bush-era tax cuts to expire at the height of the housing and jobs crisis in 2010, which experts predict would likely be the solution this year. - Read more at the Washington Post
OECD SHIFTS CONCERN TO U.S. DEBT PROBLEM A group of 20 finance ministers and central bankers from the world’s largest economies held a meeting in Mexico City this weekend, shifting their focus from Europe’s debt crisis to the U.S.’s looming fiscal cliff. They warned that without action from Congress, there will be a devastating impact on the world’s economic growth.
Jose Angel Gurria, who heads the Organization of Economic Cooperation and Development, said he was optimistic that the U.S. Congress would strike a deal to avoid the so-called fiscal cliff of $600 billion in spending cuts and higher taxes due to kick in on January 1. "I still believe it is not going to be applied," Gurria said in an interview ahead of the G-20 meeting in Mexico City, but added officials should urge the United States to take action in a communiqué set to be released Monday. - Read more at The Fiscal Times
YOUR SAVING BONDS ARE SAFE Regardless of economic uncertainty and a potential financial crisis, U.S. savings bonds are safe and remain a solid investment, according to Chris Farrell, economics editor for Minnesota Public Radio’s “Marketplace Money.”
“Sad to say, there could be a nerve-racking moment or two after the election. Nevertheless, I still like savings bonds for individual savers, and the government will make good on the loans,” Farrell writes in the Minneapolis Star Tribune. “It's important to remember that the odds are still good that despite threats, the government will steer clear of default and, if the unthinkable happens, it will eventually make good on its debts. … In this sense your investments in U.S. Treasuries remains safe.” - Read more at The Minneapolis Star Tribune
HOW TO PROTECT YOUR ESTATE If the do-nothing Congress fails to extend the estate tax break by the end of the year, there will be a significantly higher number of property and investment owners who will pay hefty tax increases. According to the non-partisan Tax Policy Center, the exemption on the estate and gift tax for individuals will drop from $5.1 million to $1 million. It would hit an estimated 52,500 estates in 2013 compared with 3,300 estates in 2012. Moreover, the top tax rate would increase from 35 percent to 55 percent.
Marketwatch’s Elizabeth O’Brien reports the following three ways to best protect your estate:
Give away stock. One often overlooked strategy to reduce the size of your estate is to gift appreciated stock instead of cash. In addition to reducing the total value of your estate, it allows you to avoid capital gains tax while rebalance your portfolio by selling winners.
Make more small gifts. Reduce the size of your estate without having the gifts count against your official exemption. For example, you can make unlimited gifts up to a certain amount per year per recipient—this year, it’s $13,000. They will not incur any gift tax or use up any of your exemption. You can also give an unlimited amount of money to any recipient if the gift is paid directly to a medical provider or educational institution on the recipient’s behalf.
Use Trusts. Shelter some assets from estate taxes through the use of trusts. For example, acredit-shelter trust can effectively double the exemption for a married couple whose assets exceed the exemption. - Read more at Marketwatch
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