Throughout the election cycle and the holiday season, the growing concern over whether Congress would reach a fiscal cliff agreement by the New Year bombarded Americans every time they turned on the news. Without the agreement, tax hikes on 98% of Americans would have been imminent—something which could have pushed back economic recovery and possibly sent the U.S. into another recession. The deal did pass in the Senate and the House of Representatives on New Year’s Day, allowing many Americans to breathe a sigh of relief. But what exactly are the terms of the deal—and what does the agreement mean for the future of America? Read on to find out.
Terms of the Deal
While the agreement was good news for most Americans, it did resolve to raise taxes on wealthy Americans in an effort to back away from the fiscal cliff. Taxes will increase from 35% to 39.6% for top tier earners, meaning that married couples who make over $450,000 and single filers who earn over $400,000 will be affected by the agreement. This group will also face and increase from 15% to 20% on taxes paid on dividends and capital gains. Estate values over $5 million will also see a hike in taxes, from 35% to 40%. Unaffected by the new fiscal cliff agreements are unemployment benefits, tax credits on college tuition, Medicare providers, and renewable energy tax credits (at least for now), all of which are designed to lift up the middle and lower classes and push the U.S. economy toward full recovery. Government spending cuts have also been delayed for two months, a point that was hotly contested in the GOP House.
How Markets Responded To The Deal
The new resolution was signed just in time for global markets to reopen for the New Year, and when they did, they rallied in support of the agreement. London’s FTSE 100 broke through 6,000 for the first time since July of 2011, and Germany’s Dax index reached 7,779.22. Hong Kong’s Seng index also showed strong support, opening at 2.1% on January 2. The U.S. Dow Jones industrial average also showed modest gains on the first trading day of the New Year, registering at 13,107.14 (up 1.28%).
Consumer confidence has continued to remain strong in the first few weeks of 2013. As of January 14, Britain’s FTSE 100 is up to 6,129, Germany’s Dax is holding strong at 7,759. Hong Kong’s Hang Seng rose 0.6% on Monday, and the U.S. Dow Jones closed at 13,507.32 on Monday, continuing to show strong support for the fiscal cliff agreement in the New Year.
Do Your Part
For most Americans, the fiscal cliff agreement means that tax hikes have been averted for the time being. Even if holiday spending has left you strapped for cash, you can still show a vote of confidence in the U.S. economy by selling your unwanted or outdated electronics on musicMagpie to get some extra spending cash. Once your check arrives, go out and spend it—it’s the surest way to help give the economy the kick start it needs in 2013 after years of sluggish activity.
This post is contributed by writer Matt Morgan. Matt is a recent graduate from Southampton University, an aspiring writer who blogs at www.thebookofmatter.com.