As the end of the year approaches and 2013 looms ahead, many small business owners are worried about the fiscal cliff and how it’ll impact their businesses.  If President Barack Obama and Congress do not come to a decision before December 31st, nearly 90 percent of the country’s average taxpayer will pay up to $3,500 in taxes, severely hurting many small businesses in the process.

What is the fiscal cliff?

The Fiscal cliff is the shorthand term coined by Ben Bernanke, chairman of the Federal Reserve, to describe the problem that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect. According to The New York Times, at midnight on December 31, 2012, “More than $500 billion in tax increases and across-the-board spending cuts scheduled to take effect after Jan. 1 — for fiscal year 2013 alone.”

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As a result taxes would rise for every taxpayer and many businesses. The New York Times also reported that, “28 million taxpayers — about one in five, all middle- to upper-income — would have to pay the alternative minimum tax in 2012, raising their taxes more.”

Financing for most federal programs, military and domestic, would be cut. Medicare payments to doctors would be reduced 27 percent, or $11 billion, and the biggest cut would be $65 billion, enacted across the board for most federal programs over the last nine months of fiscal year 2013, from January through September.

How will this affect my business?

The Congressional Budget Office (CBO) estimates that if these policies go into effect, the country will experience another recession. Thomas Kenny of  says, “While the combination of higher taxes and spending cuts would reduce the deficit by an estimated $560 billion, the CBO estimates that the policies set to go into effect would cut gross domestic product (GDP) by four percentage points in 2013, sending the economy into a recession (i.e., negative growth). At the same time, it predicts unemployment would rise by almost a full percentage point, with a loss of about two million jobs.

A possible recession will have a trickledown effect on small businesses. The CBO anticipates that a lack of resolution will cause businesses to begin changing their spending in anticipation of the changes, possible reducing GDP before 2012 is even over. A survey of 833 business owners, conducted by The Wall Street Journal found that 47 percent of small-business owners and chief executives are skeptical that the government will be able to avoid tax increases and deep spending cuts.

Neither the Democrats nor Republicans favor an expanded alternative minimum tax or Medicare cuts for doctors. The issue in preventing those outcomes is where to find offsetting savings to avoid adding to annual deficits. Additionally, both parties want to extend all of the Bush tax cuts for 98 percent of taxpayers — on income below $250,000 for couples and on income below $200,000 for individuals. Their main disagreement is on the Bush era tax cuts on income above $250,000.

So, will the government come to an agreement in time? Many small business owners are frustrated, but hopeful that the President and Congress will act in the best interest of the country at a very vulnerable time.

I would like to thank Kymberly Sheckleford for preparing this article with me. Kymberly is a Marketing Analyst at C2G Resourcing a subsidiary of Consultants 2 Go, LLC. Don’t forget, you can email me at with any questions you might have and I’ll be glad to answer them. You can also follow me and my business on Twitter @peggymchale and @consultants2go.