Study: Going Over the Fiscal Cliff Would Trim Roster of Millionaires by 6%

Tuesday, 04 Dec 2012 11:34 AM

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The number of millionaires in the United States would decline by 6 percent should the economy careen over the year-end fiscal cliff, a combination of tax hikes and spending cuts due to take effect early next year, a study compiled by WealthInsight, a London-based wealth-research firm, shows.

Failure on the part of Congress and the White House to steer the country away from the fiscal cliff could tip the country into a recession next year, according to estimates from the nonpartisan Congressional Budget Office.

A recession would crimp business and send 315,000 millionaires, or 6 percent of the total in the United States, out of that heralded club, the study found, according to CNBC.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

On the flipside, if politicians work out tax and spending reforms, avoid the cliff and keep the economy on path to growing about 2 percent next year, the number of millionaires would increase by 230,000, WealthInsight’s study revealed, CNBC added.

Don’t cry victory, however, if the nation’s policymakers do succeed in avoiding the fiscal cliff.

A compromise would most likely involve changes to tax and spending levels, which could drag on the economy next year even if a recession is avoided.

“There also remains the possibility of a fiscal slope: a growth-sapping bargain which prompts a damaging degree of fiscal tightening,” WealthInsight found.

One sticking point lies in taxes, with Democrats clamoring for allowing the Bush-era tax cuts to expire on households bringing in over $250,000 a year, a proposal Republicans oppose on the grounds that capping deductions would bring in revenue without crimping growth that outright hikes to tax rates would bring.

One economists points out that taxing the wealthy more won’t drum up the revenue to tackle what’s really ailing the economy, which are massive liabilities like healthcare costs.

“President Obama wants to raise tax rates on families and many small businesses earning more than $250,000, and Congressional Republicans would like to curb entitlements by increasing Medicare premiums paid by wealthier participants and slowing Social Security cost-of-living increases,” Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland, wrote on his blog.

“The bottom line: even if Mr. Obama delivers on his campaign promise to tax the rich and Republicans obtain some curbs on entitlement spending, the federal deficit will likely remain near or above $1 trillion for the foreseeable future and could easily rise to much more by the end of the decade,” Morici wrote.

Americans are living longer and healthcare costs are rising, something the president’s Affordable Care Act and tax hikes are powerless to address — the new law just extends coverage.

“The reasonable solutions are to raise the Social Security retirement age to 70, and pattern U.S. healthcare after other national systems that better contain costs,” Morici said.

“The Germans and Dutch spend one-third less on healthcare, because their governments more aggressively regulate prices, better ration care and spend less on lawsuits.”

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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