(Memphis) - President Barack Obama cut his Christmas vacation short to head back to Washington, where plans to meet with lawmakers to pound out a deal on the fiscal cliff.
The January 1st deadline is quickly approaching and if a deal cannot be reached on the deficit, billions of dollars in spending cuts and tax increases will take effect.
If the spike is set into play it could push our economy back into a recession. Both republicans and democrats vow to reach an agreement by Thursday, but if they don’t, how much less will the average American’s paycheck be if taxes increase.
“A lot of this legislation that is man-made has created what we call this cliff,” said financial expert, Scott Reid.
Going off that cliff means taxes will go up for just about everyone in the New Year. Congress must reach an agreement to avoid it.
“What it really boils down to is the average family is going to have to pay about another $300 a month to the federal government,” Reid said.
He said the average household makes about $86,000 a year.
“You're going to see people cut back on major durable goods purchases because that's not just $300 dollars a month for a period of time, that's $300 a month out into perpetuity,” Reid said.
A single person making $40,000 a year would likely pay out about $100 a month in taxes, but Reid believes congress will make a deal, protecting the average household and the middle class, and raising taxes only on the rich. The question is how much income is considered rich? That's part of the negotiations in Washington.
“We don't need a quick solution," Reid said. "We need a well thought through solution and that's what we need to be forcing our politicians to do is think it through.”
No matter what happens in Washington, Reid says it will take time to see how the taxes will affect our economy. He says nobody will notice an immediate difference in January because the Internal Revenue Service won't release new tax guidelines until we go over the cliff or congress reaches a deal.