What falling off the "fiscal cliff" means for you

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News Analysis

(MoneyWatch) Negotiations to steer the country away from the "fiscal cliff" drag on - President Obama is expected to meet with key congressional leaders from both parties Friday afternoon and House Republicans have been told to prepare for a possible session Sunday. But the prospects for a deal remain far from certain and barring an agreement, a combination of tax increases and spending cuts will take effect in January that experts warn will harm the economy.

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What happens if we go off the "fiscal cliff?"

Although that would not immediately trigger another recession -- the spending cuts are structured to phase in over a decade, while the tax hikes could be reversed legislatively in Washington --  the measures would likely slow economic growth, with millions of Americans feeling the pinch. Here's a look at what people can expect:

How much would falling off the fiscal cliff cost individuals in taxes? According to the Tax Policy Center, a nonpartisan research group, going off the cliff would affect 88 percent of U.S. taxpayers, with their taxes rising by an average of $3,500 a year. The reason is that Bush-era tax cuts are set to expire, which will bring the tax system back to 2001 levels. Also set to lapse are a 2 percent payroll tax cut and a series of other temporary tax cuts for businesses that Mr. Obama enacted. These include the enhanced dependent care credit, enhanced child credit, enhanced adoption credit, enhanced earned-income credit, repeal of personal exemption phase-out, repeal of limit on itemized deductions, enhanced student loan interest deduction, and an exemption for mortgage debt forgiveness.

• House to return Sunday on eve of "cliff" deadline
• Consumer confidence falls on "fiscal cliff" fears
• The "fiscal cliff": What to expect if there's no deal

Unemployed workers. Unless lawmakers agree to an extension, federal long-term jobless benefits would expire for millions of unemployed Americans. During the recession caused by the 2008 housing crash, Congress passed a temporary supplement to state-based unemployment insurance programs, which usually pay benefits for six months. If the measure is not extended into 2013, more than 40 percent of the nearly 5 million Americans who have been unemployed for more than six months will lose benefits at year's end.

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"Fiscal cliff": Effect on seniors

Low- to middle-income earners. People at these income levels would lose the Earned Income Tax Credit, along with a temporary cut in payroll taxes. For the past two tax years, employee contributions to the Social Security program was 4.2 percent, down from the usual rate of 6.2 percent (this comes on the FICA line item of a paystub) on earnings of up to $110,100 in 2012 and up to $113,700 in 2013. That 2 percent rise in payroll taxes would result in 160 million American wage earners seeing their tax bills increase by an average of $1,000.

The Internal Revenue Service has delayed releasing income tax withholding tables for 2013. That suggests  employers are planning to withhold income taxes at the 2012 rates, at least for the first couple of pay periods of the new year. If Washington leaders fail to arrange a deal by the middle of January, employers will have to increase withholding to make up the difference.

Upper middle-income earners. People earning more than $50,000 would face an increase in the tax rate on capital gains to 20 percent, from 15 percent. Dividends, which are currently taxed at a 15 percent rate, would also be taxed as ordinary income, with the top rate rising to 39.6 percent.

High-income earners. Singles who make over $200,000 and married couples who earn over $250,000 would see their tax brackets rise from 33 percent and 35 percent to 36 percent and 39.6 percent, respectively. In addition to the capital gain and dividend rates, the Affordable Care Act applies a new surtax of 3.8 percent on capital gains for wealthy Americans, pushing the top capital gains rate up to 23.8 percent. Finally, the estate tax exemption is set to drop back to $1 million dollars, with the rate increasing from 35 to 55 percent.

None of these numbers include the Alternative Minimum Tax (AMT), which was created in 1969 to ensure that wealthy taxpayers pay a minimum amount of federal income tax, regardless of deductions, credits or exemptions. In essence, it is a flat tax with two brackets, 26 percent and 28 percent.

The problem with the AMT is that it now ensnares not only the wealthiest Americans, but 4 million to 5 million taxpayers with annual incomes between $200,000 and $1 million. Congress has yet to approve a new inflation "patch" that would allow millions to escape AMT (the last patch expired in December). If a new one is not enacted, the AMT will hit 31 million taxpayers this year, reaching into the middle class.

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Reid: "Fiscal cliff" can be averted with "one vote"

What government programs would be affected by spending cuts? About $1.2 trillion in federal spending cuts are scheduled to kick in next year, or roughly $110 billion a year for 10 years. Those reductions would be divided equally between the Pentagon and "discretionary" programs, or those that don't have earmarked funds. That means that there could be cuts in everything from infrastructure to schools, to public health and homeland security.

Will Medicare be cut? The government-run health care program for seniors would face a 2 percent cut in Medicare payments to providers and insurance plans, which amounts to a reduction of $11 billion next year.

What programs would not be cut? Social Security, Medicaid, supplemental security income, refundable tax credits, the children's health insurance program, the food stamp program and veterans' benefits are excluded from the cuts scheduled under the cliff. The White House has also said that military personnel would be exempt from the cuts.

[jhonmojena]

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[mfineman73]

Remember America, majority rule doesn't work in mental institutions.

[TimeToEvolve]

So Dan, I think it is time for millions of us (or at least many more who can effectively change our system) to acknowledge that we have let business, money, consumption and waste (all of these are related) become an overwhelming force in our society.

In fact, the rich on Wall Street have figure out how to always proper from the system at the expense of the rest of us. Not shopping local and from small business has led us to having bad food, accelerating global climate change and an entire economic system set up for the Top 1% royalty. Exactly what we fought the Revolutionary War against.

[TimeToEvolve]

Sorry but Bush Cheney lied us into wars that were not on the budget and the Republicon Congress gave them everything they wanted after the frightened the little American Sheeple.

The House that spent us to the cliff's edge is the one who comes up with the budget. And since Obama was elected all of a sudden the deficits and national debt matters LOL.

[dan828]

Well, seeing as the deficit and debt are much much larger than any previous administration, don't you think it's time for someone to start caring about it? This whole, my team vs your team crap is a huge part of the problem.

Yeah, the republicans only seem to care about it when they are out of office, while on the other hand, the democrats only seem to worry about wars and government violation of american's rights when they are out of office.

But it works, and helps them get elected, so I for one, have no faith that it'll change. Most of this country's voters are blindly partisan, and like lemmings, are more than happy to follow their guys right off of a cliff.

[quantum_analysis]

Referring to "the extraordinary growth of our public debt," David Stockman wrote, "In 1970 it was just 40 percent of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970. This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party's embrace, about three decades ago, of the insidious doctrine that deficits don't matter if they result from tax cuts".

[quantum_analysis]

Again, for you republican ideologues, this statement is by David Stockman, director of the Office of Management and Budget under President Ronald Reagan, and helped create the discredited theory of "trickle-down economics," in which tax cuts for the wealthy are justified because they supposedly will benefit others as the affluent will have more cash to invest.


"This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party's embrace, about three decades ago, of the insidious doctrine that deficits don't matter if they result from tax cuts". -- David Stockman

[CBSknows]

"AMERI CAN DO SO COMPROMISE"

By using Letters From BOTH Of These Names; REPUBLICANS, DEMOCRATS

It Spells Out The Solution, But It Takes Letters From Both Names To Spell;

"AMERI CAN DO SO COMPROMISE"

PAST TIME TO COMPROMISE FOR THE GOOD OF AMERICA

[quantum_analysis]

Conservative Icons Bash Tax Cut Plan

You know when the two men many conservatives have most admired on economic issues during the past 30 years say extending the Bush tax cuts would be harmful, it truly must be a dreadful idea.

But that's exactly what Alan Greenspan and David Stockman believe.

Greenspan is the former chairman of the Federal Reserve Board from 1987-2006, the libertarian darling who lowered interest rates repeaedly to sustain the economic boom of the 1990s and opposed strict oversight of financial markets.

Stockman was director of the Office of Management and Budget under President Ronald Reagan and helped create the discredited theory of "trickle-down economics," in which tax cuts for the wealthy are justified because they supposedly will benefit others as the affluent will have more cash to invest.

In a stark repudiation of current Republican policy, both men recently went on record as stating that tax cuts don't pay for themselves, and that extending the tax cuts for the wealthy approved by President George W. Bush would harm -- not help -- the U.S. economy.

[quantum_analysis]

"I'm very much in favor of tax cuts but not with borrowed money and the problem that we have gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money," Greenspan said. "And at the end of the day, that proves disastrous."


A day earlier, in The New York Times, Stockman wrote an Op/Ed piece stating the Republican Party has become "bankrupt" of ideas. Although the GOP always pushes tax cuts, it's never been serious about making offsetting cuts -- particularly defense cuts, he said.

[quantum_analysis]

UNAmerican_Troll says: "Looking forward to the return of the Tea Party this spring, and the Revolution to overthrow Obama this summer."

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Seriously, you need something stronger than Prozac and a straight jacket, since obviously the inmates are running your insane asylum, and your delusions have given you nothing but a divorced from reality hypnotism!

[quantum_analysis]

Are the Bush Tax Cuts the Root of Our Fiscal Problem?

It would have been one thing if the Bush tax cuts had at least bought the country a higher rate of economic growth, even temporarily. They did not. Real G.D.P. growth peaked at just 3.6 percent in 2004 before fading rapidly. Even before the crisis hit, real G.D.P. was growing less than 2 percent a year.

http://economix.blogs.nytimes.com/2011/07/26/are-the-bush-tax-cuts-the-root-of-our-fiscal-problem/


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UNAMERICAN_TROLL replies: "Nobody really believes the New York Times anymore."
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LOL! That is an article by Bruce Bartlett, a conservative republican who held senior policy roles in the administrations of Ronald Reagan and George H.W. Bush and served on the staffs of Representatives Jack Kemp and Ron Paul. He along with David Stockman, director of the Office of Management and Budget under Ronald Reagan, crafted the "Kemp-Roth Tax Cut," or The Economic Recovery Tax Act of 1981 -- saint ronnie's "supply-side economic stupidity."


Stockman: Bush Tax Cuts Will Make U.S. Bankrupt

As director of the Office of Management and Budget under Ronald Reagan, David Stockman knows a thing or two about trying to balance the national budget. And he's convinced that Reagan would never support extending the Bush tax cuts of today. Stockman, who still considers himself a staunch conservative and a staunch Republican, tells host Guy Raz why he thinks extending those tax cuts would be akin to a bankruptcy filing by Congress and the White House.

http://www.npr.org/templates/story/story.php?storyId=129052425

[quantum_analysis]

Go ahead UNAmerican_TROLL -- keep making your usual ad hominem attacks on both Bruce Bartlett and David Stockman because you hate the NYTimes, yet both were the architects of "supply-side economic stupidity" that george WMD bush continued in 2001, akin to "bankruptcy filing by Congress and the White House" in 2001!

[quantum_analysis]

TIRED_OLD_PAT replies: "We have about 200 MORE social programs..."

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Government Spends More on Corporate Welfare Subsidies than Social Welfare Programs

For just $100 billion a year the federal government is able to provide a better life for wealthy CEO's and their families through corporate welfare subsidies, so they can get phenomenal salaries, benefits and golden parachutes!

Consider, for a moment the sorrow in the eyes of a CEO who's just found out that his end-of-year bonus is only going to be a paltry $5 million.

[Skyhawk442]

Indeed! A Bonus of 5million would be plenty for me, actually more than plenty, but the greedy has to have more, and all the tax payers pays for their big Bonuses.