The countdown towards the fiscal cliff is on and an answer doesn’t appear to be anywhere in sight. The cliff is a series of tax increases and spending cuts that could cost you a lot of cash.
Thirty-two days and counting until America hits the fiscal cliff. Treasury Secretary Tim Geithner discussed the December 31 deadline with key members of the House and Senate Thursday. The meetings are not going very well. The Republicans want to cut spending. The President and Democratic leaders are looking to raise taxes on people making more than $250,000.
The situation could be catastrophic for American families if the country falls off of the cliff. It’s estimated that an average family of four could face an increase of over $2,000 a year in their tax bill if no agreement is reached. The combination of tax increases and spending cuts could possibly driving the economy into another recession.
The big fight centers around taxes. The Democrats want to raise taxes on people who make $250,000 or more a year. The Republicans refuse to entertain a tax hike on the wealthy. For those of us not in that tax bracket, no agreement means huge tax increases.
An average family of four will pay between $2,200 and $3,500 more per year and here is how. First and foremost, everyone’s income tax rate will rise in some cases by as much as three to five percent.
Second, people with families will lose $500 out of the $1,000 tax credit now applied for each child. Finally, the Social Security Tax will rise by two percent, costing an average American another $1,000 a year. Despite these drastic increases, negotiations in D.C. are not going well.
“We are waiting for some specifics, somewhere, from our Republican colleagues to show they are serious about negotiations,” said Senator Charles Schumer, (D) New York.
“And I’m here seriously trying to resolve it, and I would hope the White House would get serious as well,” said Senator John Boehner, Speaker of the House.
Besides the tax increases, automatic spending cuts will go into effect. A total of $500 billion is expected to be cut from the economy including a 10 percent reduction in defense spending and another 8 percent reduction in things like education and air travel safety.
The numbers are astounding. For a person or family who earns $80,000, the tax bracket will change from 25% to 28%. That would mean a difference of $1,450 a year more taken at tax time. Combine the increased income tax rates with the reduction of the child tax credit and the increase in the Social Security Tax from 4.2% to 6.2% and you will have $3,540 less in your pocket.