Ask The Blogster: Your Taxes are going up in 2013 regardless of the Fiscal Cliff

Friday, December 28, 2012

Your Taxes are going up in 2013 regardless of the Fiscal Cliff

At some point, the House of Cards will fall apart.

America has been operating without a budget since 2011. During that year, the Congress, Senate, and President tried to negotiate a budget, but continually failed because President Obama and the Treasury Department wanted to raise the debt ceiling (Fear Not: the Federal Government has shutdown before and Social Security checks kept flowing). By August 2011, an agreement was reached. The debt ceiling was allowed to be raised to $16.3 trillion, and a "Super Committee" was formed to to address fiscal reform. In the event that the committee failed to agree on a solution, mandatory budget cuts in 2013 would take effect as a safeguard to our economy.

The Super Committee talks collapsed after a short while, and the economy has been running on auto pilot since then.

Now we are approaching the beginning of 2013 and the 2011 budget cuts, now called the Fiscal Cliff, are scheduled to go into effect. Although Ben Bernanke, Chairman of the Federal Reserve, and other economists were concerned that these cuts would trigger a new recession, our elected lawmakers have again failed to resolve this critical issue. President Obama's solution is to raise taxes on those individuals earning more than $200,000 per year and has requested the authority to increase the debt ceiling at his discretion, with an unlimited topside amount. Republicans in the House of Representatives do not want to raise taxes on anyone. And, conservatives want to limit entitlement spending.

In an attempt to bully the Republican Congressmen, the Democratic leadership has led a campaign against the Republicans, convincing the American public that it is the Republican Party who is responsible for failing to resolve the budget issue.

To complicate matters, the Secretary of the Treasury, Timothy Geithner, warned that the U.S. budget ceiling would be reached on December 30th, 2012, just two days before the mandatory budget cuts are implemented.

Needless to say, the Democrats are beginning to panic at the thought of being constrained by the required budget. This is why President Obama cut his Hawaiian Vacation short and returned to Washington DC yesterday.

Mr. Obama had campaigned on raising the taxes on the rich. He carefully avoided informing the public that new ObamaCare taxes on all income earning Americans, regardless of income level, would also become effective in the beginning of 2013.

This means that everyone who generates income will be paying more in taxes beginning 2013. The only question is how much more will be paid. If the legislature fails to avert the "fiscal cliff", the Obama give-away program begin to come to an end while all those who are still working will help to reduce the national debt.

If a new budget agreement is reached, current taxpayers will begin to pay these new taxes in 2013 due to ObamaCare:

Medical-device excise tax 2.3%, paid by elderly, sick, injured, needy
Limited Flexible Spending Accounts (30 million working Americans) tax deductions for health care costs will be capped at $2,500 rather than unlimited
Tax deduction for medical expenses exceeding 10% of annual income (up from 7.5 %)
Increase in Medicare tax from 1.45% to 2.35%
Tax increase of 3.8% on investment income for those earning $250,000 or more. Capital gains increase from 15% to 20%. Dividends tax rises from 15 to 39.6%. Plus, with ObamaCare, capital gains tax rate raised to 23.8% and dividends raised to 43.4%.
Employer Payroll tax increase

However, if we do go over the fiscal cliff, all working taxpayers will be subjected to these additional taxes as well (see What falling ...)

Income of $20,000 to $30,000: $1,064 average tax increase
Income of $40,000 to $50,000: $1,729 average tax increase
Income of $50,000 to $75,000: $2,399 average tax increase
Income of $75,000 to $100,000: $3,688 average tax increase
Income of $100,000 to $200,000: $6,662 average tax increase
Income of $200,000 to $500,000: $14,643 average tax increase
Income of $500,000 to $1 million: $38,969 average tax increase
Income of more than $1 million: $254,637 average tax increase

So, in summary, our legislative and executive body struck a budget agreement in 2011 which will now become effective in 2013. Taxes are going up on everyone whether we go over the fiscal cliff or not. This goes beyond a Republican verses Democrat debate. The budget ceiling is reached and now the future is here for our President and congressional leaders to begin spending in a rational and responsible manner. The House of Cards is about to fall apart, but the only question is when it will collapse: Now or Later?