Congress and President Obama are racing against the clock to hammer out a deal to avoid the “fiscal cliff” the U.S. government is set to go over tomorrow, New Year’s Day.
Why the deadline of Jan. 1?
The Budget Control Act of 2011 is scheduled to go into effect which implements deep spending cuts and other provisions to reduce the deficit. At the same time, the 2010 Tax Relief Act and the Bush tax cuts are scheduled to expire.
What will happen if we go over the fiscal cliff?
There will be a tax increase that America has not seen in 60 years, according to investopedia.com. Many believe that going over the fiscal cliff would reduce the overall deficit, but have a negative impact on the economy. Some say the United States could be thrown back into a recession.
If the tax cuts expire, how would it impact my income taxes?
It depends how much you make. The nonpartisan Tax Policy Center estimates that if all of the scheduled tax increases are imposed, the average household will pay an extra $3,400 next year.
Impacts based on average household income:
- Household income of $11,239 will pay an extra $412
- Household income of $49,842 will pay an extra $1,984
- Household income of $80,080 will pay an extra $3,540
- Household income of $178,020 will pay an extra $14,173.
- The top 1 percent of taxpayers, those making $1.3 million on average, will see their tax bills rise by $120,537.
Are you concerned about the fiscal cliff? Have you changed your spending habits?