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Falling Off the Cliff Means Sky-High Taxes for Most

The new report estimates that all in all, 9 in 10 Americans would see their taxes go up if we go over the fiscal cliff.

9 in 10: Americans projected to pay higher taxes post-fiscal cliff

The U.S. elections are over and we are reminded that they come against the backdrop of expiring tax cuts and potential spending reductions, also known as the fiscal cliff. If Congress does not act by January and we go over the fiscal cliff, taxes will increase for the 160 million Americans on payrolls, according to a recent report by the Tax Policy Center. The average household could pay $3,500 more in federal taxes, while the average household in the top 1% could pay $120,000 more. The federal tax rate for households in the top one-percent will climb 7% while households in the bottom income quintile will experience a  .7% increase; demonstrating that although the wealthy American population might be most significantly affected by this tax increase, underprivileged Americans will certainly still feel the impact on their wallets. The new report estimates that all in all, 9 in 10 Americans would see their taxes go up if we go over the fiscal cliff. Investors should view this as yet another reason to invest their cash, so that it has the ability to grow over time rather than be diminished by possibly sky-high tax rates.

Sources: BlackRock; Tax Policy Center; The New York Times: "The Tax Side of the
Fiscal Cliff," 10/1/2012

http://www2.blackrock.com/

Prepared by BlackRock

Delivered courtesy Joel W. Grams, CRPC®, CLTC,

Registered Representative, Financial Planner, 212 Capital Group

38 Main Street Suite 360, Westlake Ohio 44145

(440) 835-4501 Ext 17, jgrams@212capitalgroup.com

The foregoing discussion is general in nature and not intended as specific advice.
New England Financial nor its representatives are engaged in rendering tax,
accounting or legal advice. A qualified professional should be consulted regarding the effect of such considerations on the matters covered in this publication.

For information on New England Financial insurance or other financial products and services, please contact Joel W. Grams, CRPC®, CLTC, Registered Representative, Financial Planner with /New England  Financial 38 Main Street Suite 360, Westlake, OH 44145, at (440) 835-4501 ext. 17, jgrams@212capitalgroup.com

www.212capitalgroup.com 

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MZ November 10, 2012 at 03:28 PM
I can't wait to pay higher taxes. The dems tell me it's my patriotic duty. After all the federal government knows much better what to do with my money than I do.
lyn November 10, 2012 at 09:34 PM
Hey, let's just go over the fiscal cliff! Should make both parties happy - something for each to be happy about. Increased taxes, with the wealthier paying more, and forced spending cuts. And, then if the 2 parties come together after and realize it was too extreme on both ends, maybe they can reach a compromise between what happens if they do nothing and what a meeting of the minds might get them. It might force these idiots to have to work together, instead of one claiming a victory or another being stubborn.
Dave D November 11, 2012 at 02:08 PM
Everyone jokes about this, but we have the lowest tax rate in my lifetime. If the deficit was not such a problem, there would be no need for additional taxes. Everyone also forgets, we have had a 33% reduction in social security tax, with no lowering in benefits. That alone is going to be $1200 for the average household come January. Yes, we need big cuts in spending, but we also need modest increases in taxes to get the budget in order.
lyn November 12, 2012 at 07:49 PM
What are you suggesting? That they should lower social security benefits ? Extend the 2% reduction in withholding?
Murphy-Solon November 12, 2012 at 08:43 PM
I would suggest letting the payroll tax (Social Security tax) go back up. I was sympathetic to the Republican position that our Social Security system couldn't afford to take that hit. I would let the Bush tax cuts be renewed on those making less than $250,000. Keep in mind, those making more than $250,000 only pay the higher tax on earnings over $250,000. I agree with you Lyn that, if the automatic spending cuts were able to take place, then the fools in Washington will realize that it's better to compromise on the cuts. But just sit back my friends and watch both of these parties avoid sequestration at all costs. The defense contractors are all over the Republicans about not letting cuts in military spending and the social activists are all over the Democrats about not allowing cuts in social spending. We're pawns in their game of campaign contribution chess.
lyn November 12, 2012 at 09:05 PM
I agree on letting the payroll tax going back up. I didn't even like they did it for 2 years, even though it did mean more money in our family's pocket. Once you start something like that, people get use to it and then it gets harder and harder to reinstate the original rates that people had been paying for YEARS - they think its a tax increase. Even though SS was made right by the shortage they were getting because the difference came from the general fund, that just meant it added to the deficit/debt. As it is, people are worried about the future of SS, so why cut how you fund it -ridiculous!
Murphy-Solon November 12, 2012 at 09:08 PM
Social security, unlike Medicare, will not be that hard to fix. We can control costs in the way we handle cost of living adjustments but controlling the cost of medical care is a whole different can of beans.
lyn November 12, 2012 at 09:14 PM
RE: Bush tax cuts- I'd rather see an extensive tax reform as back under Reagan. Get rid of some of the loopholes to the wealthy AND credits to those that don't even pay taxes. Why should people get money back that don't even owe taxes - IMO, its not right to pay "refunds" to people beyond their tax due. THAT is redistribution through taxes. Why should you and I have to pay more while someone else gets a refund when they have a zero tax balance due?
lyn November 12, 2012 at 09:15 PM
Agree.
lyn November 12, 2012 at 09:17 PM
And this includes simplifying the tax code.
Murphy-Solon November 12, 2012 at 09:18 PM
Two interesting facts to consider. 80% of Americans pay more in payroll taxes than income taxes. The Earned Income Tax Credit had a lot to do with that infamous 47% figure and that Credit was championed by the Republican Party.
Murphy-Solon November 12, 2012 at 09:25 PM
The issue that troubles me most about Medicare is the following. If we raise the age to qualify from 65 to 67, this will offer the Medicare plan financial relief in the short run. If medical costs keep going up at double the rate of inflation as it has in the pat, then within 5 - 10 years the Medicare plan will be under the same financial pressures as it is now. I would be willing to sacrifice and wait until I'm 67 to qualify for Medicare if my sacrifice would make a difference but if we don't arrest the costs it will be fruitless.
lyn November 12, 2012 at 09:52 PM
It makes no difference to me which party pushed for what credits or deductions. I think there are too many, and I think often these politicians do these things because it will make them look more "sympathetic" to us taxpayers - its good for votes. I do not like some of what is in the Bush tax cuts as well as what Obama added to them. I am so against that almost 50% of taxpayers pay no federal income taxes, yet live in this country - and many of those taxpayers will get a refund on top of not owing taxes. Its another disincentive to do well, keep people down - its actually pays, literally, to be poor when it comes to taxes.
lyn November 12, 2012 at 09:54 PM
I'm not versed enough in Medicare to discuss it. Just hope its there when I need it after paying into it all these years.
Murphy-Solon November 12, 2012 at 09:56 PM
I understand you Lyn but once again I must point out that 80% of taxpayers pay more in payroll taxes than they do in income taxes. The state of Florida does not have a state income tax. They receive their revenues by payroll, property and sales taxes. I think too much is being made of this 47% figure.
lyn November 12, 2012 at 10:09 PM
Those property and sales taxes are in lieu, when at a higher rate, of state income taxes - has nothing to do with federal, only state and local. Payroll goes to social security (6.2% for ss, 1.45% for medicare). Those 47% are not paying into the FEDERAL system. I hate that argument that even though they don't pay federal taxes they do pay other taxes - SO??? We should ALL have to be taxed in some way. This argument panders to those who know little of taxes and how they work and who collects them.
Murphy-Solon November 12, 2012 at 10:11 PM
So, you believe the working poor should pay more taxes?
lyn November 12, 2012 at 10:13 PM
This has been a pet peeve of mine long before Romney was caught on tape saying what he did about the 47%.
lyn November 12, 2012 at 10:16 PM
I believe in the graduated tax tables/rates. And that means those at the very bottom would pay -0-. But I am against those credits that give money back to people for being poor.
Murphy-Solon November 12, 2012 at 10:16 PM
Then I think the Republicans should propose repealing the Earned Income Tax Credit. They can't have it both ways though. They can't say no new taxes just to complain that not enough people pay taxes.
lyn November 12, 2012 at 10:17 PM
That -0- would be for say the first $6000 of taxable income, then start taxing the first $6000 to ? at a low rate of 7%? Just off the top of my head. Why not something?
Murphy-Solon November 12, 2012 at 10:18 PM
I can agree with that. Zero taxation is the most I can agree with. Tax refunds for those not paying Federal taxes should be halted.
lyn November 12, 2012 at 10:23 PM
You have to remember that taxable income is after your standard deduction (or itemized) and exemptions. So, for a family of 4, with nothing special on their 1040, they could have adjusted gross income of $32400 before being taxed. I don't think that is so bad!
Murphy-Solon November 12, 2012 at 10:26 PM
Lyn, if only everyone would get out of the way and let us two run the country. Think of it, we could fine anyone who disagreed with our posts. LOL
lyn November 12, 2012 at 10:26 PM
Dinner! Later Murphy!
Murphy-Solon November 12, 2012 at 10:28 PM
Sure we could have dinner later. Oh, you meant dinner.............later Murphy o.k.
lyn November 13, 2012 at 06:50 PM
To just add to yesterday's comment while I have a minute... AND, its not just the poor who gets these credits. I don't think people realize just how much the government gives back to those they now determine to be needy. There's all kinds of credits - child tax credit (up to $3000), earned income tax credit (up to $5891),... As we have said, it is redistribution - for people to get these credits, actual money back, other people have to be paying more in taxes. This info below is from the IRS site.
lyn November 13, 2012 at 06:52 PM
Preview of 2012 Tax Year Earned Income and adjusted gross income (AGI) must each be less than: $45,060 ($50,270 married filing jointly) with three or more qualifying children $41,952 ($47,162 married filing jointly) with two qualifying children $36,920 ($42,130 married filing jointly) with one qualifying child $13,980 ($19,190 married filing jointly) with no qualifying children Tax Year 2012 maximum credit: $5,891 with three or more qualifying children $5,236 with two qualifying children $3,169 with one qualifying child $475 with no qualifying children
lyn November 13, 2012 at 06:56 PM
I have no problem with an exemption for each child, but this continual additional passing out of monies to people because they have kids or are at a certain income level is just not right. Don't take my income taxes and give them to other people - especially if they owe no taxes to begin with. This is just another form of welfare.

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