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.
VIDEO ON MSN MONEY
Ohio really did go to the president last night.
And he really did win.
And he really was born in Hawaii.
And he really is -legitimately- President of the United States.
And the Bureau of Labor Statistics did not make-up a fake unemployment rate last month.
And the Congressional Research Service really can find no evidence
that cutting taxes on rich people grows the economy.
And the polls were not skewed to over-sample Democrats.
And Nate Silver was not making up fake projections about the election
to make conservatives feel bad.
He was doing math.
And climate change is real.
And rape really does cause pregnancy sometimes.
And evolution is a thing.
And Benghazi was an attack on us.
It was not a scandal by us.
And no one is taking away anyone's guns.
And taxes haven't gone up.
And the deficit is dropping, actually.
And Saddam Hussein didn't have weapons of mass destruction.
And the moon landing was real.
And FEMA isn't building concentration camps.
And UN election observers aren't taking over Texas.
And moderate reforms of the regulations on the insurance industry,
and the financial services industry,
are not the same thing as communism.
That is fine all the Dumbocrats voters want that, more taxes and more handouts. They have spoken now the rest of the productive class get out there and work harder to pay for more stuff for the unproductive class. It had to happen once the lack of public service workers lead by the vile and corrupt teachers union along with the peeps on the tit realize they can vote for more stuff. And the Dumbocrat Party is the one that promises and delivers.
Who do we owe, and why can't we just send our military to fleece them and make them okay with wiping the debt and giving us more?
I mean, honestly, why do we pay so much for this military if we can't use it to be our leverage against these people from ever daring to call in a debt from us????
There is no mandate when almost half the population does not agree with the Presidents initiatives.
For those of you whose candidate lost; find better candidates. For those of you whose candidate won; quit gloating, be respectful to the losing side (you will need their help). Rather, get to work solving problems instead of always blaming the many failures on someone else.
man! I hate to say it, it really pains me to the core of my soul, my being but we, and I mean the hard-working and want to be hardworking but still can't find work people, are outnumbered by the parasites the do-nothings and demanding somethings' vermin that are now infecting our "pround to be American work ethic' it's really depressing, but to re-elect this monster again, after 4yrs of economic tyranny is something I just can't reconcile, this should not have happend again
I don't need to see a headline that says a 'fiscal' cliff is coming, I KNOW THAT!!! WE ALL KNOW THAT!! we are outnumbered people, gotta face the facts, not by much but by enough, Romney almost eked out a win, at least that bastard obama didn't win in a landslide, that gives me hope that we aren't completely dead in the water. but my GOD what's going to happen to this economy in the 4yrs? I don't even wanna look that far ahead!!
is it surprising the market took a nose dive of 312pts!! I'm not in the slightest surprised, and now companies aren't going to be in any hiring mode, holidays you have the temp jobs as usual but what happens after? where are the solid permanent steady jobs? THEY DON"T EXIST, and to you pathetic obamazombies that once again, slam-dunked us into another financial nightmare, I hope you burn in the deepest pit in hell with your messiah and the rest of the loony democrapic party, there's just gotta be a place in hell reserved just for you, in the meantime your not getting any "rewards" your gonna pay the staggering new taxes that are looming, your gonna pay for your own health care, and face fines/taxes, nothing is free azzwipes, your just as cooked as the rest of us and that makes me feel soooooo much better today!
For those of you who have never visited Greece. Surprise you live there. Living in Illinois my vote was cast but wasted. A state where Barry was elected by dead people.
If we had elections by popular vote those who stayed home and re-elected Barry and the Idiot would have changed the result.
Can you blame them really. You vote knowing that there are hundreds of votes already in the system. I would expect that most of the Dallas Cowboys voted in Illinois.
Yes the freight train is coming and we aren't going to get off the track.
But on the positive side eventually the Chinese will need cheap labor to build their products and we are ready.
We have a spending problem, not a revenue problem.
The govt gets more than enough money already.
4k in extra taxes a year IS NOTHING. Why do I say it is nothing because the median household income should be 120k average, but it is only 50k. Where did that 70k go? How do you think the rich got so rich? BY NOT PAYING THIER FAIR SHARE OF THE TAXES.
From 1940-1982 our top tax rate was 90%-70%. Worker's wages went stagnant back in the 60's when the top tax rate was dropped to 70% from 90%. Small businesses has been on the decline ever since the top tax rate was reduced down from 70%. Taxes are like friction and play a critical role.
Capital Gains is the biggest loophole there is and needs to be increased too. 80% or more of the top 1%'s income comes from investments that can only be taxed by capital gains. Capital gains need to be 35% or more.
Low top tax rates also encourage people to lie, cheat, steal, etc. since they get rewarded for it and get to keep the money. If they had to pay it in taxes then people would be less likely to cut corners. We would not need millions of laws to regulate people when a high top tax rate takes the incentive out of harming/preying on society.
High top tax rates encourage people to pay their workers more since they cannot keep as much as they want. If there is a choice between paying the government and paying their employees, they will pay their workers more instead or they will invest that money back into the company WITHOUT needing to be rewarded for it. They already were rewarded in the first place. They have way more then 10 times what others have.
It needs to be harder to make even more money, the more money you already possess. If it becomes easier and easier to make more and more money, a condition called "exponential runaway" occurs, which the system CANNOT ever supply for a duration of time. There is not enough money and more has to be printed to meet the exponential demand. There is no way for people to make exponentially more and more money. Each time we print MORE money what effect does that have on the money already in circulation? Why are you morons chasing something you will never catch? Why do you chase after your tails, wind, etc. like some stupid animal?
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