There is a lot of talk going on about the approaching fiscal cliff. This refers to the reversion to pre-Bush era tax rates and other cuts in various government programs that are going to be made if a solution is not found soon. Many things will occur simultaneously, and when added together, the expiration of the Bush tax cuts will produce rather large changes in the finances of many people across America.
When President George W. Bush was in office, he successfully reduced personal income taxes for most Americans. The period of reduced taxes is over, however, if Congress does not pass new legislation to keep them in place.
Personal income taxes is one place where the average American is going to feel the results of the fiscal cliff if the Bush tax cuts expire. Almost every income level will have an increase in taxes, according to TheWeek.com. Starting at the lowest level, those married couples who make less than $17,800, will have their IRS tax rates raised from 10 to 15 percent. The next group, the $17,800 to $60,350 bracket, will be fortunate and not see any increase at all. Then the next level, those who make $60,350 to $72,300, will have the highest percentage increase, going from a current 15 percent up to 28 percent.
The next change in tax rates will be in the areas of deductions. The standard deduction for married couples will be reduced by almost $2,000, going from the current $12,100 to the lower amount of $10,150. In addition, the child tax credit will be cut in half, going from $1,000 per child to $500.
Another tax rate that will be affected when the Bush tax cuts expire is the amount of a deduction each employee will see going toward Social Security. Under President Bush, this amount was reduced by two percent, putting it at the current rate of 4.2 percent. After January 1, unless an agreement is made to extend the current tax rates, it will return to its previous level of 6.2 percent.
One more way that a large group of people will be affected by the fiscal cliff is the reduction in services of Medicare. This is apt to be gradual. There will be tax cuts that will directly affect more than 1,000 government agencies, and the amount that doctors get for treating patients on Medicare is one of them. Since doctors already get reduced fees when they treat these patients, it is possible that many of them will not see them at all when their payments are reduced by double-digit figures, suggests News.Yahoo.com.
The tax rate on capital gains and dividends will also be rising. At the lowest end, it is currently zero, but this will be raised to 10 percent. Higher levels will stay at 15 percent, but for those who make more than $200,000/$250,000 will pay up to 20 percent – unless Congress extends the present rates.
Talks are presently going on to extend some of the Bush tax cuts. Some of the tax rates will probably go into effect. It is becoming more apparent that a solution may not be found for several months, which means that most of us are going to have to pay more to Uncle Sam before an agreement is made to solve the fiscal cliff problem.