Off The Fiscal Cliff- Who Gets Hurt The Most

by Gerri Willis

There’s no doubt about it, there is a disconnect when it comes to consumers' view of the economy and that held by corporate chieftains.


Today the Wall Street Journal reports CEOs are pulling back on spending, expanding and hiring. The paper says half of the nation's 40 biggest publicly traded corporations have announced plans to curtail corporate spending.


Consumers on the other hand are spending, sinking into debt, and using their credit cards more and more. Consumer confidence is at a 4-year high. Spending excesses are becoming more prominent.


The national credit card delinquency rate edged higher in the third quarter, while the average credit card debt per borrower jumped nearly 5% from a year ago to almost $500.


It's as if Main Street and Wall Street were living on two different planets. The difference may have something to do with those corporate bean counters that have their eyes fixed on Washington these days as the country drifts closer to the fiscal cliff.


CFOs see the tax hit all of us are about to take very clearly - individual tax rates spike, as do taxes on dividends. That's just the start. Without a convincing fix, the economy is headed into a recession, if it's not already there, but consumers don't have a crystal ball, that is quite clear. 


We've said the average hit for American households will be some $3,500 next year, but there are, as Washington knows, a lot of ways to skin a cat. Some on Capitol Hill are talking about reducing or eliminating deductions, and tax loopholes to raise revenue.


To be sure, for some Americans that will be painful too.


Here's who would get hit the most - California, New York, DC, Connecticut and New Jersey.


Now, I know some people think that if you remove those tax credits and deductions, we'd lose the progressivity of the tax code. In other words, the tax system, they say, would become even more unfair. 


Not true, even after credits and deductions the tax system is still progressive. Whether the president or congress choose to eliminate deductions or allow the Bush tax cuts to expire, there is no doubt that individual American households will get hurt; especially small business operators.


I hope it takes more than a return to a recession and a massive tax bill for people to figure out the consequences of the fiscal cliff.