Uncovering Polital Code – Maybe!
Topic Summary: During the recent debates “Fiscal Cliff” and “Sequestration” have been tossed around and all the political news talk-shows have been discussing them. So let’s look at the math and dissect the definitions.What’s this code for?
| The United States fiscal cliff refers to a slowdown in the economy if certain laws are allowed to be enacted and other laws allowed to expire. All this activity is set to occur on January 1, 2013 buts its impact is being felt now in certain parts of the economy. |
If Congress does nothing and the United States plunges off the “fiscal cliff” in three months, taxes would rise for 90 percent of Americans due to automatic increases in income and payroll taxes and other financial shocks. |
The average tax increase will be $3,500 per household if the current tax policies expire and other ones are enacted.
The three major events that make up the potential harm to the economy (the Cliff) if there is no intervention by Congress are:
1 Payroll Tax Goes Back To 6.2% For most wage earners who get a W-2 statement, their after tax take home pay was increased 2% because of the temporary FICA adjustment for Social Security and Medicare contribution.(More on your contribution)
The reduction started in early 2011 and was extended in February of 2012 set to expire January 1, 2013. There does not appear to be any support for extending the break so prepare for a 2% decrease in your take home pay starting in January if noting is done to extend the break.
2 The result of Budget Control Act of 2011
Recall the debt-ceiling crisis when Congress was fighting over allowing the U.S. credit rating to drop because of debt defaults? Well, Congress passed a set of rules that would force automatic cuts across the board to nearly all facets of the government. This is called Sequestration and the actions came out from the Defense Department, to school lunch programs; budgets will automatically get cut 7%-10%. The ramifications of these cuts (economists say) are liable to push the economy into recession and knock 1.1 million workers off the job. As an example of the damage that could be inflicted, look at how the Sec. of Education sees the cuts impacting education.
3 The expiration of the Bush-era Tax Cuts.
Cuts in the individual income tax rates, capital gains tax, dividend tax and other taxes affecting most Americans were enacted in 2001 and 2003 by President George W. Bush. They were extended under Obama in 2010, but will expire at the end of this year. The President favors allowing the Bush-era rates to expire for families making $250,000 or more (or individuals above 200K.) For these taxpayers, income above that level would be taxed at 36%. If their income reaches another threshold the rate will move up to 39.6% under the Obama plan. That income is now taxed at 33% and 35% under the Bush-era rates. The Republicans favor extending all the Bush tax cuts regardless of income.
So What’s The Solution?
Prepare for another showdown played out on TV and in partisan sound bites. Nearly all ideas to delay the most impact of the fiscal cliff involve extending certain parts of the 2010 Tax Relief Act, amending the 2011 Budget Control Act, or a combination of both. It is expected nothing will happen until the election. Subsequently, there will be another round of debt ceiling talks and it is hoped a solution can be worked out in December before the economy reaches the CLIFF!
More to come…
