Each passing day gets us closer to the “fiscal cliff” that takes effect in January unless Congress passes a budget deal prior. I’m going to do a couple of blogs this week to help you understand why you should be concerned.
Everyone who pays income tax, and some who currently don’t, will feel the impacts of the cliff. It is estimated that middle-income families will pay between $2,000 and $4,800 more in taxes next year according to the Tax Policy Center.
More than 50% of the tax increases would come from the expiration of tax cuts approved in 2001 and 2003 and from additional cuts in 2009 as a part of the economic stimulus law. Another 20% of the tax increase would come from the end of 80 0r so tax breaks, mostly for business. An additional 20% of the tax increase would come from the expiration of a Social Security tax cut enacted in 2010. This change would cost someone making $50,000 about $1,000 a year, or nearly $20 a week, and a household with two high paid workers up to $4,500, or nearly $87 a week. The remaining 10% of the tax increases would come from the alternative minimum tax or AMT. The AMT would apply to 30 million Americans as opposed to 4 million now. The AMT is designed to prevent anyone, regardless of income, from not paying income tax. Under the fiscal cliff, households with the lowest 20% of earnings would pay an average of $412 more, The top 20% would pay an average of $14,000 more and the top 1% would pay $121,000 more according to the Tax Policy Center.
Scared yet? It’s not over. The tax increases are just part of cliff. The across the board spending cuts to defense and domestic programs will send ripples across several different industries. Defense spending would be reduced by 10%. Highway funding, aid to state and local government and health research spending would drop 8%. Education grants to states and localities, FBI funding, environmental protection and air traffic control will also be affected.
Hospitals and physicians will have to absorb $11 billion in Medicare payment reductions and for many of you reading that hits close to home.
It is estimated that 3.4 million jobs will be lost and unemployment will rise above 9%.
I don’t know how high the cliff is but it seems like we have a long way to fall. Next time I’ll touch on how the cliff may affect Medicare.