Kitchen Table Example to Explain the Fiscal Cliff
Last year two families vacationed together and split the cost of $9,000. The Jones’ paid for $5,000K of the vacation to help the Smith’s. They had known the Smith’s for years and were happy to help. The Smith’s paid $400 and borrowed the other $3,600 to do it. Unfortunately, they put the debt on a credit card that was already maxed out. No one cared. Everyone had a great time.
The Smith’s offered to plan the next summer vacation. The Smith’s wanted to invite the Johnson’s to go this year. So they called them and asked for their help on planning the vacation. They started investigating vacation alternatives and settled on $8,000, $9,000, $10,000 and $12,000 options. Well, they immediately ruled out the $8K and $9K options because they didn’t want to take less of a vacation than last year. They loved the $12,000 option but they weren’t sure if they can pull it off this year. They settled on the $10K option. The Johnson’s made it clear they were invited guests and were not expecting to contribute to the cost. The Smith’s agreed that wouldn’t be fair to ask the Johnson’s to pay since the Jones’ could afford it. So, the Jones would pay $6,000 this year. The Smiths the same $4,000 again borrowing $3,600 on a new card. The Johnson’s would not be charged anything. They were excited to call the Jones’ to let them know the vacation plans.
The Jones’ were angry this decision was made without them. They were angry the cost went up $1,000 over last year and that they are expected to cover the majority of the vacation for the other two families. They were also worried the only way to accommodate the extra people would be to lower the quality of the trip. The Jones’ didn’t even know the Johnson’s and couldn’t understand why they were paying for their vacation. The Smith’s countered that the Jones’ have always paid more, they wanted the Johnson’s to attend because they like them more then the Jones’ and after all, the Johnson’s have never contributed before so really, nothing has changed. In fact, the Smith’s argue they SAVED the Jones’ $2,000 by electing the $10,000 vacation instead of the $12,000 option.
Well, the day to leave finally arrived. The Smith’s and Johnson’s packed up and traveled to the location only to find the Jones’ weren’t there. The rest of the money was due before the vacation could start. The Johnson’s suggested the Smith’s use their new credit card to pay the $6,000 but the Smith’s didn’t want to do that. They wanted to vacation together but it wasn’t fair for them to pay for the Johnson’s. Plus, they never would have picked a $10K vacation if they knew they would have to pay for it. The Johnson’s argued they weren’t going to pay. They were invited and expected a free vacation. It was the Smith’s responsibility to pay. Neither family would budge. So the two families turned around and went home.
The Jones’ had decided they would rather vacation alone and had a wonderful time. The best in years – and it cost them only $4,000.