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Fast Facts: FISCAL CLIFF

FACT: The fiscal cliff consists of tax increases and spending cuts scheduled to go into effect on January 1, 2013. Top-line items include: Sequestration Cuts. As a result of the Super Committees failure to reach an agreement, defense and non-defense budgets will be cut by $1.2 trillion. The Bipartisan Policy Center estimates that the sequestration cuts alone will result in 1 million lost jobs in 2013 and 2014. Personal Tax Rates. The lowest individual income tax rate will expire, reverting to 15%. The 25%, 28%, 33%, and 35% rates will revert to 28%, 31%, 36%, and 39.6% respectively. Capital Gains and Dividends Rates. The 0% and 15% tax rates on long-term capital gains will expire, rising to 10% for lower tax brackets and to 20% for higher tax brackets. The current qualified dividend tax rates of 0% for lower tax brackets and 15% for higher tax brackets will rise to ordinary income tax rates. Estate Taxes. The estate-tax exemption will drop from $5 million to $1 million, while the maximum estate tax rate will rise from 35% to 55%.

FACT: The 2013 impact of the fiscal cliff ($600 billion) is twice the projected growth in U.S. GDP this year ($300 billion). In fact, the negative fiscal shock exceeds GDP growth in any year over the last two decades, according to the American Action Forum. FACT: If Congress and the Administration do not address the fiscal cliff before the end of the year, the Congressional Budget Office (CBO) reports that the U.S. economy will experience a recession in 2013. According to the most recent CBO report released on August 22, 2012: Real GDP is projected to decline at an annual rate of 2.9 percent during the first half of 2013; Unemployment is projected to rise to 9.1 percent by the end of 2013, and; While the pace of economic activity will pick up after 2013, the economy is expected to remain below its potential until 2018.

FACT: This projection is worse than CBOs prior estimate, due to a continued weak economy and Congresss extension of temporary payroll tax breaks and emergency unemployment benefits through the end of 2012. FACT: If all or even some of these spending cuts and tax increases are eliminated before the end of 2012, CBO estimates that economic output would be greater and unemployment lower in the next few years. Financial Services HOTLINE: If you have questions about this topic or any other issue facing financial services, please reach out to Abby McCloskey, Director of Research at the Financial Services Roundtable, at 202-589-2531 or Scott Talbott, Senior Vice President of Government Affairs, at 202-289-4322. August 2012

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August 2012