Skip to comments.Just What is the "Fiscal Cliff?"
Posted on 12/30/2012 12:26:33 PM PST by married21
As we approach the end of 2012, youve likely heard lots of talk among politicians and the media about the impending fiscal cliff. This term refers to a combination of tax increases and spending cuts that are slated to take effect in January 2013 if Congress fails to take action. But how will this affect you?
Payroll Tax - 2013 will bring the expiration of the payroll tax cut enacted by Congress in 2011. Starting next year, the current employee payroll tax rate of 4.2 percent will go back to 6.2 percent.
Higher Tax Levels - At the end of the year, the Bush-era tax cuts are slated to expire. Unless these cuts are extended, tax rates will revert to 2001 levels. The current 10 percent tax bracket will be eliminated, making 15 percent the lowest tax bracket. The existing 25 percent tax bracket will increase to 28 percent, the current 28 percent tax bracket will increase to 31 percent, the 33 percent tax bracket will increase to 36 percent, and the 35 percent tax bracket will increase to 39.6 percent.
Capital Gains and Dividend Taxes - The expiration of the Bush-era tax cuts will also bring changes to capital gains and dividend taxes. In 2013, the top capital gains rate for most investors is slated to jump to 20 percent from its current rate of 15 percent. Taxpayers in the current 10 percent and 15 percent tax brackets who do not have to pay any tax on long-term capital gains and dividends will pay 10 percent on long-term gains. The treatment of dividend income will change as well. Currently, income from qualified dividends is treated as capital gains and taxed with a top rate of 15 percent. Next year, dividend income will instead be taxed as ordinary income, with a top rate of 39.6 as outlined above. While taxes on long-term capital gains and dividends will go up for everyone, these changes could result in substantial increases for high-income earners.
Estate Tax - The estate tax is also scheduled to jump from 35 percent to 55 percent in 2013, while the value of estate assets excluded from estate taxes will drop from $5.12 million to $1 million.
Marriage Penalty - The marriage penalty will reappear in 2013, potentially resulting in a greater tax burden for married couples filling jointly.
Other Changes - The coming year could also bring changes to itemized deductions and exemptions, the alternative minimum tax, the child tax credit, and the child and dependent care tax credit, among others. Regardless of what happens to the tax code in 2013, its important to plan for your financial future. Working with a tax professional and a financial advisor can help you prepare for these changes and help you stay on track as you pursue your goals.
Jana Swenson is a Vice President/Investments with Stifel, Nicolaus & Company, Incorporated, member SIPC and New York Stock Exchange, and can be reached by calling the firms Murrieta, California office at (951) 461-7220 or toll-free at (866) 894-2461.
By the way, I don’t work for the author of the article, and I probably should have blocked out her contact info.
In my opinion the “fiscal cliff” is nothing more than media hype about a bunch of children playing “if you don’t let me play I will take my ball and go home”. And hopefully then Mommy or Daddy will stomp on them and make them do right (but in this world today that probably will not happen).
Going off the “fiscal cliff” is far more conservative than caving in to a “deal” to Obama and Reid.
THE FC actually cuts spending and increases taxes to bring the budget more towards balance. We are borrowing money from China to protect oil supplies to China from the middle-east. It is as dumb and foolish as it gets. We can’t be a super power with super-budget-deficits and super-national-debts.
Rome tried that, and caused the demise of Roman empire.
“By the way, I dont work for the author of the article, and I probably should have blocked out her contact info.”
Why? You’re not invading her privacy, it’s part of the article. And no, you’re also not directing people to contact her - it’s up to them.
On the other hand, we at FR are a pretty sharp bunch, and also can probably answer any questions that people may have.
As to the Bush Tax Cuts themselves, the DUMBEST thing they did was adding the 10% bracket. All it did was jettison a bunch of INGRATES from the tax roles, allowing them to vote for Obama, twice, without consequence. If it takes going over the cliff to teach them a lesson, so be it.
“Just What is the “Fiscal Cliff?””
Ya really wanna know...for all practical purposes?????
It’s just more of the same bs we’ve been fed all our lives by the gubmint-military-industrial-congressional-educational-msm-etc-etc complex!!!!!
To keep us entertained and running in circles while they rape, loot,and plunder, etc us!
Keep a series of issues b4 the herd, don’t let them stop to think, divide them into groups, then divide again—sound familiar?
It should by now—that’s all folks! (”The Folks”) another name for the herd.
ping fiscal cliff
Impending fiscal cliff is the same as wondering if a fart is going to be wet.
True story. I usedta know this feller whose name was Cliff Deal.
Ewww. That is an image I did not need in my head.
If your statement is right then why not make tax rates zero? That would maximize tax revenues?
Obviously you are incorrect. During Clinton era tax rates went up and so did revenues. May be 39.5% is the bottom of the famous Laffer curve.
But tax rates is not the main reason I like the fiscal cliff. Why I like is because it mandates spending cuts. Our politicians on both sides, especially democrats, are not known for real spending cuts.
I’ve heard discussions that the problem isn’t a hike in the tax rates per se, but not knowing what they are going to be that is a big damper. You can’t make business decisions when you don’t know what tax rates will be in the next year. Heck, I can’t even finish my budget for next year, not knowing what our income tax rate will be.
Tax rates are not the main reason businesses are marching in place. Difference between 35% current rate and 39.5% Obama wants is not huge. If tax rates were the only problem, businesses could just assume 39.5% and proceed.If they stay anything below that, it would just be a bonus for more profits.
The main problems are increased cost of Obamacare, and increased regulatory burden on businesses. They just do not know how much Obama will increase those burden going forward.
So, what is the value of “t” in your chart?
I would have to conclude based on history that tax rates during Clinton’s 2nd term are the optimum from revenue point of view, which is our point of debate.
But I do NOT really wish for the government to collect maximum revenues. I prefer a smaller government. So I would be somewhere near half of the “t” from the highest point on curve.