Real Effects of "Fiscal Cliff" Debate - how it affects us

[perry]

I hope you all are sitting down when you read this.

If no agreement is reached the US will be reverting back to the 2000 tax rates. How will that affect us?

Today I started working on my budget for next year - and one of the first inputs is how much is my and my wife's normal income going to be.

Princess Zhanna and I have our open enrollment benefit data/cost for 2013 now so I can figure the changes in various deductions - and assuming that Taxes (FED/SS/Medicare/State) stays the same the biweekly income goes down about $50 (about $1300 yr). OK.

However, what happens if we revert back to the 2000 FED/SS tax code. So I figured our approximate FED taxes for 2012 and then recalculated the FED/SS taxes using the 2010 tax tables. I then added then added the additional taxes to my estimated 2013 FED/SS deductions. Note that we are currently in the 25% marginal FED tax bracket - but I would be in the 28% marginal tax bracket under 2010 rules; and that SS taxes were lowered by 2% two years ago - and I think that is likely going back to the 6.2% number for most people.

If the 2010 rates are applied to our normal income our FED/SS taxes would go up by $265.16 biweekly - or $6890 per year; reducing our biweekly take home by $265.16. That is in addition to the benefit charge changes of about $50 biweekly or $1300 per year.

To put this in perspective our joint take home pay is about $2400 biweekly under the current (2012) taxes. The reduction just from the tax increase is to 89% of the previous biweekly incomes.

People who make noticeably less will be affected a lot less; those that make noticeably more will be even more significantly impacted.

While I have no idea where Congress and the President will end up - I suspect somewhere in the middle. Most folks should know that this will affect their budgets enough to need some careful planning.

I do not wish this thread to discuss the politics of why and the Fiscal Cliff - nor how it affects the national budget.

Lets discuss how this kind of cut in income will affect us.

In my case I now go forth to plan an austere budget - assuming the worst case.


Perry

 

[ponder]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

I think this thread is a wonderful idea. Since the media is only focusing on the possible tax increases for those making 250K and up, I think too few people have really tried to sit down and understand what this means for the majority of people and specifically for each of us. We pay taxes quarterly and are meeting with our accountant next week to get a game plan for our Q4 payment and next year.

 

[sonnyjane]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

I was just reading an article yesterday that outlined this but naturally I can't find it for the life of me now.

Anyway, it said that the increase for my husband and I will be about $3,800 a year, which for us is quite a bit.

 

[HopeDream]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

I'm a Canadian, so tax rates won't change for me, but the USA is our largest trading partner and if you folks experience a sudden major economic slow-down, our economy will be slowing down right along with yours. Our politicians have grave concerns, but there's not a lot we can do about it.

I hope that Canadian real-estate prices will come down - our housing prices continued to climb when the USA had all the foreclosures that lowered American real estate prices, so we're due for a housing market correction. I'd like to buy a house in the next 5 years (and by house I mean a tiny condo) but I can't afford $259,000 for a 633 sqft 1 bed and 1 bath place right now.

I'm not looking forward to upcoming budget tightening and economic suffering on both sides of the border.

 

[TooPatient]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

I'm not looking forward to what will happen. We were already hit with added taxes/fees this last year in the area of about $400-500 every two weeks!

My current plan is to get as much medical stuff done now rather than after the 1st of the year and start cutting as much as I can from our budget in preparation. We're also talking about the possibility that I may have to do some contracting stuff between (or even during) school quarters.

It doesn't help that everything we use has gotten more expensive.

 

[justginger]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

Being in Australia, I won't be directly affected. But I will be watching with interest to see how it impacts the global market and economy. I know that with the current exchange rate, Australians will continue to gobble up everything manufactured in America, so no worries there.

 

[madelise]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

This gave me a good perspective: http://youtu.be/3ugDU2qNcyg

 

[Mayk]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

I'm afraid to do the math but we will be doing the same thing in two weeks with the accountant.... I'm sure it will shocking...

 

[ksinger]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

We're incredibly lucky at present that it will only affect our saving rate, and considering that in order to further reduce my taxable income I am forced to gambl...INVEST my money in the stock market (aka - The Great Roulette Wheel), I could just as easily lose every last dime of the tax increase, in hits to my portfolio. Any less in my paycheck I will adjust to, just like I would adjust if I had to take a lower paying job. But I realize ANY increase likely will be much harder of those living closer to the edge.

The goal is still to have the house paid off end of next year. I continually pat myself on the back for taking my mom's advice (almost always stellar) and buying a house that never strained my budget, even right after I bought it. I've never been house rich and cash poor, than goodness.

The way I feel about these taxes is we paid them before (those of us who were paying taxes in 2000 and before) and we can pay them again. It was only ever a temporary thing anyway, no matter how attached to them people have become. God knows they've cost us a bundle in lost revenues in the last decade. Overall, the Laffer Curve has been a massive flop that didn't deliver.

 

[iLander]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

Honestly I am So sick of the drama queens in Congress. They are such a big bunch of babies.

We know they will work something out.

They always do.

I don't pay their salaries so that they can stamp their feet about the debt ceiling, the yearly budget (every freaking year), this fiscal cliff, and whatever dramatically named "crisis" they can come up with next year. How about "monetary apocalypse"? Is that already taken?

Big bunch of drama queens, they just want to stamp their feet and be on TV "talking tough". Whatever.

 

[iheartscience]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

The way I feel about these taxes is we paid them before (those of us who were paying taxes in 2000 and before) and we can pay them again. It was only ever a temporary thing anyway, no matter how attached to them people have become. God knows they've cost us a bundle in lost revenues in the last decade. Overall, the Laffer Curve has been a massive flop that didn't deliver.

Yep, this.

 

[ksinger]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

The way I feel about these taxes is we paid them before (those of us who were paying taxes in 2000 and before) and we can pay them again. It was only ever a temporary thing anyway, no matter how attached to them people have become. God knows they've cost us a bundle in lost revenues in the last decade. Overall, the Laffer Curve has been a massive flop that didn't deliver.

Yep, this.

I guess I should have added though, that I also believe that for many people - the ones who ARE closer to the edge, this is going to be exceedingly bad. Aside from the obvious cuts, the pull-back in the flow of money as individuals either no longer have enough to spend, and/or make the rational choice and prepare for "austerity", is going to hit the economy badly. That paradox of thrift, don'tcha know.

Hubs and I are wondering if this will be enough to drive us into that dreaded deflationary spiral. It seems tailor-made to do just that. If that happens, we are well and truly screwed.

 

[Karl_K]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

Honestly I am So sick of the drama queens in Congress. They are such a big bunch of babies.

We know they will work something out.

They always do.

I don't pay their salaries so that they can stamp their feet about the debt ceiling, the yearly budget (every freaking year), this fiscal cliff, and whatever dramatically named "crisis" they can come up with next year. How about "monetary apocalypse"? Is that already taken?

Big bunch of drama queens, they just want to stamp their feet and be on TV "talking tough". Whatever.

great big DITTO!!!!!!

 

[madelise]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

Honestly I am So sick of the drama queens in Congress. They are such a big bunch of babies.

We know they will work something out.

They always do.

I don't pay their salaries so that they can stamp their feet about the debt ceiling, the yearly budget (every freaking year), this fiscal cliff, and whatever dramatically named "crisis" they can come up with next year. How about "monetary apocalypse"? Is that already taken?

Big bunch of drama queens, they just want to stamp their feet and be on TV "talking tough". Whatever.

great big DITTO!!!!!!

Next year, I see the headlines: Financial Apocalypse! HAhaha. I hate those stupid "We're all going to be Chinese soon" jokes, too. Really?! I suspect all this drama they cause is to make the overall population freak out and vote for/against people/propositions.

 

[diamondseeker2006]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

I certainly hope they get it worked out. Lower take home pay means less spending and that will further drive us into recession or worse, I think. I have no idea how it will effect us until Jan. 30th when my husband gets his first check of the new year.

 

[FrekeChild]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

Honestly I am So sick of the drama queens in Congress. They are such a big bunch of babies.

We know they will work something out.

They always do.

I don't pay their salaries so that they can stamp their feet about the debt ceiling, the yearly budget (every freaking year), this fiscal cliff, and whatever dramatically named "crisis" they can come up with next year. How about "monetary apocalypse"? Is that already taken?

Big bunch of drama queens, they just want to stamp their feet and be on TV "talking tough". Whatever.

great big DITTO!!!!!!

Next year, I see the headlines: Financial Apocalypse! HAhaha. I hate those stupid "We're all going to be Chinese soon" jokes, too. Really?! I suspect all this drama they cause is to make the overall population freak out and vote for/against people/propositions.

Ah. See, the Republicans have to get something figured out. They are on the defensive with this issue. If they can't work something out, they look even worse to the American public than they already do. They have a LOT of reasons to compromise, and no real reason to actually push us over the cliff. Well, the only reason to push us over would be to save their big billionaire buddies from large tax increases.

They won't do it though. Their ego risk is too big. They don't want to be the cause for the downfall of the economy.

As for us, we have a flexible budget and we'd be able to get by.

 

[Dancing Fire]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

[quote="FrekeChild|

Ah. See, the Republicans have to get something figured out. They are on the defensive with this issue. If they can't work something out, they look even worse to the American public than they already do. They have a LOT of reasons to compromise, and no real reason to actually push us over the cliff. Well, the only reason to push us over would be to save their big billionaire buddies from large tax increases.

They won't do it though. Their ego risk is too big. They don't want to be the cause for the downfall of the economy.

[/quote]
yep,always the Republican's fault...

 

[ksinger]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

[quote="FrekeChild|

Ah. See, the Republicans have to get something figured out. They are on the defensive with this issue. If they can't work something out, they look even worse to the American public than they already do. They have a LOT of reasons to compromise, and no real reason to actually push us over the cliff. Well, the only reason to push us over would be to save their big billionaire buddies from large tax increases.

They won't do it though. Their ego risk is too big. They don't want to be the cause for the downfall of the economy.

yep,always the Republican's fault... [/quote]

Maybe not entirely, but the addition of the recent Tea Party true believers (voted in on platforms of no compromise E.V.E.R.), their insistence on dividing the country into "real Americans" (the 53%) and everyone else (the 47%) and their traditional opposition to civil rights, school desegregation, women’s rights, labor organizing, the minimum wage, social security, LGBT rights, welfare, immigrant rights, public education, reproductive rights, Medicare, and Medicaid, and their more recent fights against every Democratic policy – including the stimulus bill, jobs programs, aid to local governments (FEMA is such a boondoggle right?), court appointees, more labor rights, health care, financial regulation, net neutrality, unemployment benefits, expanding access to food stamps and Head Start, action on global warming and immigrant rights, means that now they get to actually OWN their well-deserved moniker as "the party of no". It's hanging around the party neck like a big 'ol rotten fish. And house elections are in 2 years.

 

[Dancing Fire]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

[quote="FrekeChild|

Ah. See, the Republicans have to get something figured out. They are on the defensive with this issue. If they can't work something out, they look even worse to the American public than they already do. They have a LOT of reasons to compromise, and no real reason to actually push us over the cliff. Well, the only reason to push us over would be to save their big billionaire buddies from large tax increases.

They won't do it though. Their ego risk is too big. They don't want to be the cause for the downfall of the economy.

yep,always the Republican's fault...

Maybe not entirely, but the addition of the recent Tea Party true believers (voted in on platforms of no compromise E.V.E.R.), their insistence on dividing the country into "real Americans" (the 53%) and everyone else (the 47%) and their traditional opposition to civil rights, school desegregation, women’s rights, labor organizing, the minimum wage, social security, LGBT rights, welfare, immigrant rights, public education, reproductive rights, Medicare, and Medicaid, and their more recent fights against every Democratic policy – including the stimulus bill, jobs programs, aid to local governments (FEMA is such a boondoggle right?), court appointees, more labor rights, health care, financial regulation, net neutrality, unemployment benefits, expanding access to food stamps and Head Start, action on global warming and immigrant rights, means that now they get to actually OWN their well-deserved moniker as "the party of no". It's hanging around the party neck like a big 'ol rotten fish. And house elections are in 2 years.[/quote]

well,we got to start some where b/c with $16 trillion in debt we are heading in the way of Greece fast.

 

[minousbijoux]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

iLander: couldn't agree with you more. This obviously has a clear political slant, but it would have been just as funny the other way:

http://www.nbc.com/saturday-night-live/video/fiscal-cliff-press-conference-cold-open/1426435/

 

[partgypsy]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

The fact of the matter we are going to have to increase taxes, and decrease some entitlements, either total amounts or reduce the amount they are increased over time. This issue is like the can that keeps being kicked down the street. It would be better to acknowledge the problem, and gradually reduce some benefits (as well as any other cost cutting measures that can be found) than to keep pushing away the problem and run into Greek-style austerity measures (which would bomb the economy).

I'm almost afraid to look at how the change in tax revenues would affect our real bottom line. I'm a government employee, so my pay has been frozen for almost 2 years (while deductibles have gone up). I personally thought the payroll tax cut was silly and short-sighted, but having the pay freeze, plus payroll tax cut removed, plus having to pay more in taxes will hurt.

But it's better than the alternative.

 

[Regular Guy]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

Perry,

Princess Zhanna? When did you tie the knot?

My local free version of the Washington Post did a nice brief write up, showing how my sitation would look:

a) under the Dem proposal
b) under the Republic proposal
c) under the cliff

It was obvious about the issues.

But, in a radio broadcast & survey of listeners, some think they wouldn't be affected at all.

Not sure how surprised to be.

Mostly I'm writing to say hello, how are you, happy holidays, and hope you've been well.


Ira Z.

 

[partgypsy]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

Actually, Fed employees going on 3 years of pay freeze. We used to have "extra" in our budget. Between the freeze and things like grocery bills, insurance, and property tax bills going up, we have a slim margin in our budget. I traded a higher salary in the private sector for more security and benefits in the public sector. At some point I may have to re evaluate the cost/benefit ratio.

 

[gem_anemone]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

I've only been working my career for five and a half years, so maybe I haven't seen enough changes in Congress/Presidency etc. to see major fluctuations in taxes, but it seems strange to me that the tax increase will be so significant it will cause me to see a take-home income decrease 11% between December 2012 and January 2013. Honestly my budget wouldn't allow that to still live comfortably, so I don't know what I would do if that is truly the case. I could see an increase of like 3 or 4%, but anything beyond that just seems outrageous. I just have a hard time believing that will happen, but again --- I know next to nothing about taxes.

 

[amc80]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

I did an online calculator (http://www.taxpolicycenter.org/taxcalculator/index.cfm) and it was pretty shocking. I can't remember the exact number, but I think our combined liability will go up by about $3900 a year/$150 a paycheck. That's a lot.

 

[justginger]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

Not to minimize what a rude shock it is...but surely this is what is NECESSARY? I mean, it's like the US has been racking up credit card debt for years with little thought of the eventual repayments. Either benefits and programs get cut, or taxes get increased, basic math. Australia has (what I consider to be) excellent benefits and programs, but we've got matching tax brackets (the majority of my "average level" pay is taxed at 32.5%, with a bit at 19% and a bit at 37%). I'm sorry for those who will see a significant loss, but I do think it's probably beneficial for the system as a whole, is it not?

Actually I just noticed when I looked up my exact tax bracket info - our lowest income last year was taxed at 15% (is rising to 19% next year), the middle was 30% (rising to 32.5% next year), and the top bracket mentioned has remained the same. And I've heard not one word about taxes going up. Australians just pay them.

 

[NewEnglandLady]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

If only that reasoning worked for my employer. My increased spending = you paying me more.

 

[amc80]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

Either benefits and programs get cut, or taxes get increased, basic math.

...

I'm sorry for those who will see a significant loss, but I do think it's probably beneficial for the system as a whole, is it not?

Ding ding ding.

It just depends on if you'd rather have programs cut versus have taxes be increased. It pi$$es me off that my income is going to get cut even more to pay for services for other people.

 

[amc80]

Re: Real Effects of "Fiscal Cliff" Debate - how it affects u

If only that reasoning worked for my employer. My increased spending = you paying me more.

Right? My review is on Friday...maybe I'll try that out. "Well, I'm now paying $348 per paycheck for day care, so if you could increase my salary by $9,048 a year that would be super. Thanks."