Fiscal Cliff Bill Will Shrink Your Paycheck

Your take home pay will be a bit less, thanks to the “Fiscal Cliff” bill that Congress passed at the first of the year.

The reason is that the reduction in Social Security taxes which Congress passed at the request of President Obama has expired. This reduction was part of the stimulus package used to keep the country from going into an economic free-fall after the housing crash and resultant lending crisis of 2008.

I’m certain that some of my Republican readers will chide me for saying this. According to them, when I criticize the Obama administration, I’m a statesman. When I criticize the Republicans, I’m a biased Democrat.

However, it is a plain fact that I never benefitted in my paycheck from any of the huge tax cuts that President Bush passed during his presidency. My take home pay did not go up. My taxes did not drop.

On the other hand, the tax cuts President Obama enacted raised my take home pay about $100/month.

I am not a subscriber to “trickle down” economics. The reason I am not is that the money doesn’t trickle down. Or if it does, it doesn’t trickle far enough to get down to me and any of the people I represent.

We’ll talk more about this later. For now, I want to draw your attention to an article from the Baptist Press which outlines some the effects that the “Fiscal Cliff” deal had on deductions for charitable giving. I’ve bolded the section which talks about social security to make it easier for you to find.

The article reads in part:

The ‘fiscal cliff’ bill & charitable giving
 

Posted on Jan 8, 2013 | by Warren Peek/Southern Baptist Foundation

NASHVILLE (BP) — After weeks of political drama, the U.S. has averted or at least delayed the so-called “fiscal cliff.”The American Taxpayer Relief Act of 2012 has been signed into law by the president after passing both houses of Congress.

Don’t you love the names of these bills? Taxpayer “relief” means that about 77 percent of U.S. households will pay higher taxes according to Bloomberg, mostly because of the expiration of the payroll tax cut. While some provisions are still set to expire, several provisions have been made permanent.

Following is a brief summary of various provisions of the act that may impact charitable giving:

Income taxes 

The 2012 ordinary income tax rates remain intact for most taxpayers. For individuals with incomes over $400,000 and joint filers over $450,000, the federal income tax rate increased from 35 percent to 39.6 percent. The dividend and capital gains rates also increased from 15 percent to 20 percent for those filers as well. For most other taxpayers, however, the capital gains rate remains at 15 percent.

Phase-out of itemized deductions and personal exemptions 

For individuals earning above $250,000 and joint filers above $300,000, itemized deductions and personal exemptions are limited. Total itemized deductions are now reduced by 3 percent. This phase-out will be watched closely, as there is still pressure to cap or phase out all itemized deductions.

Payroll taxes

The reduction of the payroll tax in Social Security is now over. Social Security will now collect 2 percent more from our paychecks. An employee earning $113,700 (the maximum amount of earnings subject to the tax), will pay an additional $2,274 in payroll taxes this year. (Read more here.)

The Fiscal Cliff: America’s First Self-Inflicted Recession??

Experts Forecast the

Cost of Failure to

Compromise

New York Times

By NELSON D. SCHWARTZ | New York Times  

Even if President Obama and Republicans in Congress can reach a last-minute compromise that averts some tax increases before Monday’s midnight deadline, experts still foresee a significant drag on the economy in the first half of 2013 from the fiscal impasse in Washington.

While negotiators in the capital focus on keeping Bush-era tax rates in place for all but the wealthiest Americans, other tax increases are expected to go into effect regardless of what happens in the coming days. For example, a two percentage point jump in payroll taxes for Social Security is all but certain after Jan. 1, a change that will equal an additional $2,000 from the paycheck of a worker earning $100,000 a year.

Many observers initially expected the lower payroll-tax deduction rate of 4.2 percent to be preserved. But in recent weeks, as it became clear that political leaders were prepared to let that rate rise to 6.2 percent, economists reduced their predictions for growth in the first quarter accordingly.

Largely because of this jump in payroll taxes, Nigel Gault, chief United States economist at IHS Global Insight, is halving his prediction for economic growth in the first quarter to 1 percent from an earlier estimate of just over 2 percent. That represents a significant slowdown in economic growth from the third quarter of 2012, when the economy expanded at an annual rate of 3.1 percent.

Mr. Obama has pushed to preserve Bush-era tax rates on income below $250,000 a year but Republicans have held out for a higher threshold, perhaps in the neighborhood of $400,000 a year. Republicans also favor deeper spending cuts to curb long-term budget deficits — a move many Democrats oppose.

While hopes dimmed Sunday afternoon that a deal could be reached before Jan. 1, most observers said they did not expect the full impact from more than $600 billion in potential tax increases and spending cuts to swamp the economy right away. Indeed, a compromise could be struck in the coming weeks that heads off the worst of the fallout.

In the event no compromise is found, however, the Congressional Budget Office and many private economists warn that the sudden pullback in spending and the rise in taxes would push the economy into recession in the first half of the year. Under this outcome, Mr. Gault said, the economy could shrink by 0.5 percent over all of 2013. (Read more here.)

What Is the ‘Fiscal Cliff’?

What is this “fiscal cliff” that commenters and pollsters talk about? What difference does it make to you and me?

The following excerpt from a Yahoo Finance article does a good job of answering these questions.

As usual, our elected officials are taking polls to learn what we the people think about their brinksmanship politics. They use the results of these polls to determine how far they can go in endangering the rest of us and keep their jobs. I don’t read much about them putting our country first, just how they can frame their irresponsibility so that the other guy takes the political fall for it.

BOTH parties are at fault here. NEITHER party appears to give a care about this country.

Pollsters are polling us. Politicians who don’t care about governing are using those polls to determine their next move in the one thing they do care about, which is making the opposite political party look bad.

I doubt that many people who are being polled know what the “fiscal cliff” is, or why it matters to them. I don’t want Public Catholic readers to be that uninformed.

The Yahoo Finance article says in part:

The fiscal cliff refers to the potentially disastrous situation the U-S faces at the end of this year. At midnight on December 31st, a number of laws are set to expire. If the President and the Republicans don’t reach an agreement before then, Americans could face broad government spending cuts and tax increases on January 1st. The combined amount would total over 500 billion dollars. Those 500 billion dollars equal about three to four percent of the nation’s entire gross domestic product. This is what’s referred to as the fiscal cliff.
If there isn’t a resolution, here are the specifics of what will happen.
Taxes would go up for almost every taxpayer and many businesses. The Bush-era tax cuts, which tax relief for middle and upper-class tax payers, would be a thing of the past. So would President Obama’s payroll tax cut which added about a thousand dollars a year to the average worker’s income.
Government spending would be slashed. That means less money for most military, domestic and federal programs. $26 billion in emergency unemployment-compensation would be gone. Medicare payments to doctors would be reduced by $11 billion. Federal programs would take the biggest hit. They stand to lose a total of $65 billion.
If the fiscal cliff isn’t avoided, some investors will be hit hard. Those who receive qualified dividends could see the tax rate on those dividends go from 15% to almost 40% in 2013.
Many business owners believe going over the fiscal cliff will cripple the economy, triggering a deep recession. (Read more here.)


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