11/7/2012 3:45 PM ET|
Fiscal cliff takes aim at your wallet
It's the crisis no one wants to face. But the fiscal cliff is looming -- and it will hit your finances hard if Congress doesn't act soon.
At least the fiscal cliff is aptly named. If we reach it, our economy could plunge off a precipice.
On Dec. 31, a raft of tax cuts will expire, and a bunch of automatic federal spending cuts will kick in. If you haven't heard much discussion about it, that may be because many people don't realize yet what's at stake.
"There hasn't been a lot of talk" among regular people about the fiscal cliff, said CPA and attorney Mark Luscombe, the principal federal tax analyst for tax research firm CCH. "People could start complaining when they see their first paycheck in January."
What's expiring includes some $500 billion in tax cuts. According to CCH, here's what that means:
● Higher tax brackets: The lowest 10% bracket would disappear, and the highest would rise from 35% to 39.6%.
● Higher payroll taxes: The "payroll tax holiday" of the past two years will expire, raising workers' Social Security contributions to 6.2% of their paychecks from the current 4.2%.
● Higher rates on capital gains (from a current 15% maximum to a 20% maximum) and dividends (from a current 15% to as high as 43.4%).
● Significantly lower child and dependent care tax credits.
● The return of the so-called marriage penalty.
● The end of temporary fixes that keep nearly 30 million families from having to pay the dreaded alternative minimum tax.
● Dramatically lower gift and estate tax exemptions (the limits will plunge from $5.12 million to $1 million) and higher tax rates on transfers in excess of those limits (from a maximum 35% to a maximum 55%).
The Tax Policy Center estimates that the end of virtually every tax cut enacted since 2001 would boost taxes an average $3,500 per household. Middle-income families would see an average annual tax increase of almost $2,000, the center said.
The $100 billion in automatic spending cuts -- which include $30 billion in cuts to the defense budget -- are a result of Congress' previous failure to come up with a workable compromise to cut the deficit.
Our wobbly-kneed economy doesn't need to have billions of dollars pulled out from under it right now. The Congressional Budget Office has warned the fiscal cliff will trigger a "significant" recession, throwing an additional 2 million people out of work.
OK, that's bad, but simply taking a U-turn could be worse. The CBO warns that if the tax cuts are all extended and the spending cuts averted, the deficit will explode. As a result, the national debt -- which is now a worrisome 70% of our gross national product -- would rise to 90% of GDP within 10 years.
The money we spend paying interest on that accumulated debt wouldn't be available for more productive uses, like investing in businesses that could provide jobs. The economy could slowly strangle. Other government services likely would have to be sacrificed to pay the tab. Those who buy our debt might decide we're not all that creditworthy and demand higher interest rates. In fact, Moody's ratings service has already threatened to cut the nation's credit rating if Congress doesn't come up with a plan to cut spending.
In short, keeping everything as it is now -- tax cuts in place but no spending cuts --"would improve the economic outlook in the short run but would boost deficits and debt significantly and would place the budget on a path that is ultimately unsustainable," the CBO wrote in its August report. (Italicized emphasis added.)
CBO uses the word "unsustainable" to describe this trajectory three more times in its report, just so we get the point.
Clearly, a lot is at stake, and some hard choices have to be made. The uncertainty is already a drag on the economy and interfering with people's ability to plan their finances. So it should be no surprise that Congress has dithered. No one knows whether lawmakers will be able to put together a deal to avert the fiscal cliff or to soften its effects.
Oh, yeah, and we're also scheduled to hit our debt ceiling again at the end of the year. Last time that happened, the political theatrics spun so far out of control that we almost defaulted on our debt.
Since the Nov. 6 election, there have been a few signs that a compromise may be possible as pressure mounted on Congress to act. The CBO repeated its warnings in a Nov. 8 report, but also indicated that letting taxes rise only on wealthier people—as President Obama has advocated—would not hurt the economy much. The CBO estimated tax hikes for households that make $250,000 or more would cost 200,000 jobs in the short run, rather than the 700,000 claimed by Republican Speaker of the House John Boehner.
Boehner, for his part, has indicated he would be open to “new revenue sources” and a “fairer, cleaner, simpler tax code” but not necessarily tax hikes. Both sides have been trying to parse his remarks, with some concluding that certain tax deductions, like those for mortgage interest and state and local taxes, may be targets for reduction or elimination.
It’s also possible that the lame-duck Congress will punt, at least until next year, by passing measures that put off the fiscal cliff for now. Then newly-elected lawmakers could wrestle with a longer-term compromise on taxes and deficit reduction.
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Im trying to grasp this. Perhaps someone can help.
Question#1 Who is it, that we "Owe" this debt too? Is there a name or organization?
Is there a contract or other documentation of this "said" Debt?
Ive been told "China". I dont understand that. Is China printing federal reserve notes?
more questions too follow.
We, The Citizens of The United States of America, have been heading for a fiscal cliff for decades. Blame yourselves if you what to blame anyone. You watched jobs move over seas and didn't scream loud enough, or was it that the products came back cheaper? You listened to politicians and believed their lies, even when you knew better!
The problem started with a Democratically controlled congress that ruled for 40+ years dating back to Franklin D. Roosevelt. Entitlements became the mantra under FDR. Deficit spending began with FDR's "New Deal" and the "Hundred Days" recovery reforms. All these government projects cost a great deal of money - much more money than the government collected in taxes. So, the government borrowed money and sold government bonds. Nice try in attempting to blame it on the Republicans "as usual", but it was the Democrats who really started bankrupting the country many years ago with entitlement programs and deficit spending. I don't believe FDR's goal was to ultimately bankrupt the federal government but that is essentially what has happened. Just some history 101 for you !!!
Every American needs to figure out how to let the government know that enough is enough, if they take more money we want more accountability, if they tax more we want a bigger say on where it is spent.
Does America need to revolt and protest this ridiculous President.
Look at Americans, many of them are lucky to tie their shoes and get their zipper up after going to the bathroom, and now they have come together to keep Obama in office, which every dictator in the world supports. Obama is a socialist dictator and his voters just empowered him to destroy America.;
Americans need to take a stand against these ignorant liberals all standing around with their hands out hoping for all the free stuff.
The democrats have been in control of the purse strings the last 6 years. Obama has over spent and very few jobs. Insurance rates are out of control with Obamacare. The small business owner is strapped for money because of the high cost business expenses and hiring people. With health insurance going up 10-15% each year and the democrats wants to raise taxes on small business, there are going to be a lot more lay offs and bankruptcies. Businesses just can't afford it. If you don't have the money to pay federial and state taxes, payroll and medicinal insurance for your people, you go broke and shut it down. That is going to add to the problem. You libs need to write a payroll check and do some home work before you vote next time.
You said it better than I could have.
November 6th 2012 was the death of America as we know it, and Odumbo now has nothing to get in his way or to stop him from his goal to finish destroying what was left of America. He surrounds himself ONLY with Anti-American radicals and known terrorists. Why the hell can't people see thru his thin skin is beyond me. And the media? I don't get them either, ignoring or hiding all of his criminal and treasonous actions over the last four years is beyond me. They should have been trying to expose what he really is like flies oh Sh*t, but instead hide and distort the truth so they can prop up their king, who's only agenda is to destroy America.
This election just proved that we now have a country with enough parasites who have figured out that they can vote for a living instead of work for a living. The problem with that is with Socialism nobody has any incentive to work, because hard work is never rewarded but the rewards taken and given to those who won't work. Pretty soon nobody will be working and the parasites who thought they could vote for a living will be the first to starve soon after the once working class tax money is no longer available to support them.
I don't have all the answers but people who voted this anti-american socialist back in need t think long and hard about what they did on November 6th 2012, because those people just put the last nail in THEIR OWN coffin along with 150 Million good people who DO care and "want", or should I say "wanted" to succeed.
I'm not worried. Politicians from both sides will find a way to kick the can down the road and make our kids and grandkids pay for it. Tehcnology will save the day. "Green" economy jobs will proliferate and save the economy. Al Gore will save us all with carbon credits, while Michael Moore proclaims Al is king of America. Lush Limpbaugh will blame it all on food stamps and college loans for sluts.
I could go on, but we've all heard it now for years. One thing for sure, nobody in Washington has the guts to fix this mess.
How about someone go line by line through the budget and get rid of things that are a waste.
Let's cut all foreign aid for four years and give tax credits to corporations to move jobs back to America.
Put in a 50% tax rate on any money spent by special interest groups and lobbyists to buy votes. They could help pay to fix our mess at the same time they pay to create it.
How about a federal bond program where people can purchase bonds that have a good interest rate and can't be cashed for 20 years? All funds go directly into paying off the deficit and can't be used for anything else. I could feel like I made a difference personally by investing in America.
Oh wait, the politicians would never let this happen. Silly me.
To all of you living in Obama's financial Utopia; "which grade of cannabis are you on ?"
Blah, blah, blah...tax and spend, tax and spend.
That is all that the democrats do. While those that work for a living are forced to pay higher and higher taxes, those that chose to not work keep getting more and more freebies that they didn't work for and don't deserve to get...
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