Skip to comments.What the 'fiscal cliff' means for you
Posted on 12/26/2012 6:07:34 AM PST by rhema
If politicians fail to cut a "fiscal cliff" deal before Jan. 1, it means a lot less money in your pocket, period. This is especially true for lower-income earners, who will be hit hardest proportionally.
To illustrate the danger the fiscal cliff poses to Americans right now, at Christmastime, we used the Tax Foundation's tax calculator to produce a few examples of how Americans in various life situations will be affected.
Our first example is Manuel -- a young fellow who makes about $50,000 a year working at a newspaper.
Manuel, a single man with no dependents
What he pays now: $9,075
If we go over the fiscal cliff: $10,313
Manuel's income tax rates will rise, and the payroll tax holiday will expire. As a result, he will pay an additional $1,238 in taxes -- and he'll see the difference immediately in his first paycheck.
Parents will be hit harder than people without children. Anne, for example, makes just $40,000 as a hospital receptionist, and she is a single mom.
Anne, single mom with one child
What she pays now: $4,268
If we go over the fiscal cliff: $6,048
In addition to increases in her income and payroll taxes, Anne will lose out because the per-child tax credit will fall from $1,000 to $500. For her, that's a 42 percent tax increase.
Stephen and Alexandra -- a two-income family with two children -- would be hit even harder. He makes $60,000 as a firefighter, while her job as a Catholic school teacher pays $40,000.
Stephen and Alexandra, married with two children
What they pay now: $14,300
If we go over the fiscal cliff: $21,950
Their tax bill goes up because they would not be allowed to claim the per-child tax credit and would have to pay the 26 percent Alternative Minimum Tax for part of their income. All told, their taxes would rise by $7,650 -- more than 50 percent -- to $21,950 per year.
The fiscal cliff also means that Uncle Sam will take a bite out of the retirement money many seniors rely on. An increase in the tax rate on investment income, combined with the move to tax dividends as ordinary income, means that Harold and Phyllis, a retired married couple, would see their taxes nearly double!
Harold and Phyllis, retired married couple
What they pay now: $3,395
If we go over the fiscal cliff: $6,638
Their $15,000 in dividends will be taxed as ordinary income, and the rate on their $10,000 in investment income will go up, with astounding (and depressing) results. Their $30,000 in Social Security benefits and $20,000 in other income will also be taxed at a higher rate.
Wendy, a single woman with no children, makes $300,000 as the owner of a small construction business, plus $30,000 from capital gains and $10,000 from dividends. She faces a 17 percent tax increase.
Wendy, single small-business owner
What she pays now in taxes: $100,519
What she'll pay if we go over the fiscal cliff: $116,923
Wendy's rates will go up, plus she will pay the new Obamacare tax on her investment income. The $16,404 in additional taxes she would pay could have otherwise been reinvested in expanding her business.
Fenton and Sarah, the wealthiest couple in this cast of characters, earn $750,000 in combined salary as a stock analyst and lawyer. They also have $250,000 in investment income, $50,000 in dividend income, two kids and a mortgage. These members of the fabled "1 percent" face a tax increase of $79,224, or 28 percent.
Fenton and Sandra, professionals with two children
What they pay now in taxes: $322,788
What they'll pay if we go over the fiscal cliff: $407,396
The fiscal cliff will be very unkind to everyone -- including seniors, parents shouldering the enormous expense of raising children, and people in lower income brackets.
This is why it's important for Congress and President Obama to keep us from going over the fiscal cliff on Jan. 1.
A lot of people don’t have to wait ‘till 2013 for a tax increase. some of us are going to see a substantial AMT in 2012
Fiscal cliff now...or pay more later. There is no escape. Get it over with so the politicians won’t have it to use as an ever-present threat. Pay the piper.
...but they won't.
The dirty little secret is that the people described above are going to see their taxes raised eventually. There just aren’t enough rich people to soak over the long haul.
The real wealth in this country is spread across the millions who make up the middle class - not in the 1%.
The middle class is going to be crushed by Obamacare alone.
Democrats won’t agree to any spending cuts or entitlement reform so taxes have to go up hard on all the 53% who are paying them and probably a good share of the 47% who aren’t. The low info voters just don’t know it yet.
Next year is going to be an interesting ride as states continue to struggle and the can gets kicked further down the road toward the brick wall.
And, don’t forget all of us who work for the DoD as contractors who will not only see our taxes go up, but also our incomes go to zero as our jobs are eliminated.
This is an unsigned editorial in the Washington Examiner. Some of the examples are wildly erratic. I think it was written by someone who has only a rudimentary comfort with math, and very little knowledge of actual tax law.
Most of that difference is the 'Payroll Tax Holiday' that Zero put in. Slashing employee SS contributions by 23% (6.2% to 4.2%)
2% of $50,000 = $1,000
I don't think they are even touching the sunset of the payroll tax holiday - for Manuel, that's the bulk of his tax savings of his cliff.
And manuel is probably an illegal anyway.
Then break his flute.
All the financial pain that’s been building up over the years, with trillion-dollar deficits, out-of-control giveaways and a whopping national debt, is here.
Pay it now, while it hurts, or pay it later, when it will be agonizing and quite possibly fatal. Either way, the economy is going to suffer.
We might as well go over the cliff and have done with it. Let all those low-info voters realize what they voted for. Once they start howling, maybe they’ll wake up.
And yes, I’m part of the 53% who pays taxes. (Funny how 10% is good enough for the church, but five times that burden isn’t enough for government.)
>> This is why it’s important for Congress and President Obama to keep us from going over the fiscal cliff on Jan. 1.
... but not SO important that Boner should cut a deal “at any cost”.
The FACT is, withholding may increase immediately, but the tax bill doesn’t actually come due until April 2014.
Plenty of time for the populus to realize the bum deal they’re getting from Obummer and DEMAND tax relief. And any tax rate extension passed by Congress can (and most likely will) be retroactive to Jan 1. That pretty much gives ‘em all year to fix the problem. And any excess taxes paid in through increased withholding will be refunded in 2014.
This doesn’t apply to the so-called “payroll tax holiday” but that’s a whole ‘nuther deal, and was supposed to be temporary anyhow.
I worked with many business in bankruptcy, I can not remember one that was successfull. The reason is because of the mgt and mentality of the people involved, it does not change.
Not to worry. If you’re making less than $250,00, you will not have your taxes increased by one dime. Said the man behind the curtain. /
Conservatives need to rename the “Fiscal Cliff” to the “Obama Cliff” so that the Demos truly own it. Right now, the Fiscal Cliff is some ominious thing that they’ll be able to blame instead of the Left’s higher taxes and higher spending.
LIberal media is always adept at PACKAGING things that would normally be unfavorable to the Left in nice, feel-good sound bytes, such as “Affirmative Action”, “Investing” instead of spending tax dollars, etc.
As Drudge said: “Merry CLIFFmas!”
This is a fictitious crises made by government so as to create panic. The panic in turn allows them to steal MORE OF OUR LIBERTY.
States wake up!
He voted for Obama and I'm sure he wants to do his patriotic best.
This is why President Pee Wee is taking a break from his vacation.
There is some pleasure to be had in this...knowing that Obama voters, at least the ones not on welfare, will really be pinched. Like lawyers, teachers, college administrators...