Do You Know What the 'Fiscal Cliff' Is?
With all of the news stories referring to the impending 'fiscal cliff' we're all supposed to be hanging from these days, news outlet Reuters hit the streets of finance hub New York City, and asked people if they knew what the heck it was. Here's a few less-than-informed answers:
If you feel like you'd give a similar answer, and have wondered what the hubbub is all about, here's a brief rundown on what the fiscal cliff involves:
A cornucopia of tax cuts and governmental spending programs have been doing what they can to provide additional economic stimuli to the economy for over a decade now. Many of these are slated to expire on January 1, 2013, unless Congress acts to extend them further. So what's on the line for you and I? Should President and Obama fail to act, here's why it'll feel like you're about to fall over the edge:
- Tax rates for the wealthiest Americans will go from roughly 35% to almost 40%, and pretty much every rate below it will rise to a lesser extent. Thirty two million more Americans will be pushed to the Alternative Minimum Tax, or AMT, effectively raising their tax rates.
- Estate taxes will rise back up to 2001 rates, from around 45% to a whopping 60%, after allowed waived amounts.
- The child tax credit will be halved.
- Tax breaks for attending college will be lessened, as will retirement savings.
- Medicare payments to doctors will drop over 27%, which means Americans will have to dig deeper into their pockets to pay for services provided by those doctors that don't begin refusing service to Medicare card holders.
- It is estimated that up to 20,000 Americans will hit the unemployment rolls, as nondiscretionary governmental and defense spending drops 8-10%.
- Although not tied to the slate of tax and program cuts, The Patient Protection and Affordable Care Act, also known widely as ObamaCare, will take effect regardless of the fiscal cliff, causing more financial distress to the system by raising payroll taxes just under 1% on earnings greater than $250,000 (for someone filing jointly) and $200,000 (filing single).