Note from Investopedia: In light of all the discussions surrounding the fiscal cliff debate, Fox Business Network (FBN) anchor Gerri Willis weighs in below on what this double whammy of higher taxes and lower federal spending could mean for your holiday season. Willis hosts "The Willis Report" on FOX Business Network (FBN) at 6 PM/ET daily.
1. To be sure, for many consumers there may be fewer gifts this year as some families may begin to pull back spending as they face tax hikes that will average $3,500 per family if the fiscal cliff is not averted. True, it appears that spending in some areas – like online holiday shopping – could be headed towards a new high. But as more consumers get word of higher taxes they may become more tight-fisted with their holiday spending dollars. The trouble would no doubt bleed over into next year's economy. According to the White House, if some action isn't taken on the fiscal cliff, spending at retail stores across the country could drop quite significantly.
2. Airlines and restaurants could face some of the same headwinds as retail stores if consumers slow spending. Airlines may find their holiday season more of a bust than a boom. Already, Fitch Ratings says that 20 years of air traffic data suggest that passenger volume will be flat to down 5% if the fiscal cliff scenario happens, and that trend could begin smack dab in the middle of one of the nation's biggest travel weeks: the Christmas holidays. Likewise, restaurants are at risk, especially because eating a meal out is typically the ultimate discretionary expenditure. Let's face it, if you're worried about taxes you may just opt for the PB&J at home.
3. Happy New Year! Or not … While December 31 is the deadline for Congress to reach an agreement on how to avoid the fiscal cliff, the looming uncertainty this season could make retailers more nervous and constrain plans to hire as many as 625,000 part-time workers. This is a move that typically gives a shot in the arm to the economy. Further, if the fiscal cliff issue remains unresolved, it may well impact employment economy-wide and discourage employers from hiring in the new year. Estimates of jobs that could be lost in a fiscal cliff meltdown range from 710,000 to 2 million, which would be a bitter pill for American workers. Twenty-three million of these workers are still unemployed or underemployed.
4. The Santa Rally – an end of year rally investors watch for the way kids long for sugarplum fairies – may disappoint. Already, sectors that could get hit by fiscal cliff-inspired selling – like dividend-paying utility stocks – are under pressure. There are, however, some investment ideas for the fiscal cliff.
5. Lest you think all the news is bad, though, there is this little extra gift: early dividends. Because taxes on earnings from dividends will spike in the new year if the fiscal cliff isn't avoided, many companies are awarding them early or making a special dividend payment before the year ends. Wal-Mart (NYSE:WMT), for example, is awarding its dividend early, which will allow investors to enjoy the current dividend tax rate of 15% versus as much as 39.6 percent if the law is not changed.
More From Investopedia