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The Latest on the Fiscal Cliff

December 20, 2012

Possible impact of fiscal cliff on not-for-profit organizations.

President Obama and House Speaker John Boehner appear to be slowly moving closer to each other in their respective positions on the issues. Boehner is rumored to now be open to accepting higher tax rates and the President has offered compromises on both the tax rate increase and spending cuts. Finally this genuine give and take is moving the two sides closer together although this is not a guarantee that a deal will be struck by the January 1st deadline.

The resolution of the Fiscal Cliff issue is important to everyone, including tax-exempt nonprofit organizations. We all live and work in the U.S. economy and the health of that economy impacts all of us in one way or another. So what can we expect when this issue is “resolved”?

Most analysts agree that there would be an immediate boost to the economy from taking the Fiscal Cliff off the table. The elimination of the uncertain effects from automatic deficit-reduction plans could possibly raise business confidence tempered somewhat by the negatives of increased tax rates and the expiration of the payroll tax holiday. So in the short term, almost any deal will be a positive for the economy.

Uncertainty is bad, so certainty is good. But after the initial bounce that certainty will bring, it is much more difficult to predict what a budget agreement will mean for the long-term. One theory is that if the United States is finally dealing with its long-term deficits and debt issues, this could inspire businesses to hire and consumers to spend, both of which would contribute to growth. Growth is good.

On the other hand, dealing with deficits means some degree of austerity as a result of the reduction in spending, even if it is a reduction in spending on things that we did not need. Such a reduction in spending will tend to be a downward force on economic activity and growth. Success depends on the positive growth resulting from dealing with our debt issues overcoming the drag on the economy that results from reduced spending. So stay positive, keep shopping and if the weather is bad, shop online. Happy Holidays!

For more Not-for-Profit information contact any member of our NFP Services Group.

As one of the largest CPA firms in Boston, KLR is unique because they service over 220 not-for-profit organizations with compliance and consulting services. We have extensive experience helping Nonprofit organizations regarding boards, and board responsibilities, charitable contributions, taxes and 990 filing requirements. The KLR Nonprofit team is active in our local community and not-for-profit organizations, visit our Facebook page to see photos from our latest volunteer event.

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