How Fiscal Cliff Affects Taxpayers & the Country

Posted on December 31, 2021

How Fiscal Cliff Affects Taxpayers & the Country

Everybody has been talking about how the country must not fall off the fiscal cliff. What is fiscal cliff? Fiscal cliff is the key tax increases, expiring of spending cuts and other tax changes that are going to take effect from January 1st, 2013, if no efforts are made to stop the changes from taking place.

Economists have warned that if Obama administration and Congress is unable to take necessary steps to stop all tax changes due to take place starting 2013, it might lead to a recession. The results of falling off the fiscal cliff will be reduction in consumer spending due to higher taxes, and a rise of $500 billion annually in the tax take of the U.S. government that would lower the federal budget deficit drastically, but at the cost of high economic price.

http://www.foxbusiness.com/government/2012/12/27/snapshot-what-will-happen-if-us-goes-over-cliff/ shares details about the tax changes made in the Bush administration, which is important to understand why the U.S. is facing the fiscal cliff today.

“On Dec. 31, low ordinary income tax rates enacted on a “temporary” basis in 2001 under former Republican President George W. Bush are set to expire.

President Barack Obama, his fellow Democrats and Republicans in Congress agreed at the end of 2010 to extend these rates for two years, but only a few days remain on that timetable.

If Congress and Obama do nothing by Dec. 31, taxes will rise for most Americans. Rates will go up to 15, 28, 31, 36 and 39.6 percent from the present 10, 15, 25, 28, 33 and 35 percent.

Obama and the Democrats want to prevent this by extending the Bush tax rates again, but only for income below $200,000 per individual, or $250,000 per family. For income above that level, they seek a return to the higher, pre-Bush tax rates.”

Democrats and Republicans are divided over which tax cuts to extend and to which income levels. If they do not come to an agreement, taxpayers will see tax increases in many areas including capital gains, investment, itemized deduction, personal exemption, Obama healthcare tax, alternative minimum tax and payroll taxes.

Obama administration is looking at other ways to deal with the fiscal cliff if no agreement is reached with the Republicans. Foxbusiness summarizes it thus:

“The Treasury Department on Dec. 26 announced the first in a series of measures to delay by two months or so the day when the government will exceed its legal borrowing authority. Without action, Treasury said the $16.4 trillion debt ceiling would be reached on Dec. 31. Obama wants it raised under a deal to avoid the cliff and he wants new power to raise it himself.”

The country has already reached the fiscal cliff and taxpayers will start to pay more in taxes from January 1st, 2013. It is time the government takes immediate steps to avoid the threat of recession that is still very much a reality.