Fiscal Cliff Redux: Keep Your Barf-Bag Handy
Well, glad to see they didn't wait til the last minute! I would speculate that this is "political kabuki theater" as Bill Clinton coined it but frankly I don't think the players have that much imagination.
It looks like Hell will freeze over a week before Congress averts the "fiscal cliff". (But if only there was an actual week to work with.)
Taxes: OK, here goes, as exciting as watching grass grow-- except when governmental incompetence and partisan immaturity starts costing you real money. (I guarantee it won't be costing the prez or anyone in Congress any real money; they have a way of writing themselves out of tax increase laws or just plain being so rich they don't really care about 5% here or there.) So here goes.
Let's say for argument's sake you are married and renting. And you're DINK yuppies. The details from a tax geek's POV are:
Married, joint return
Both working
No kids/deps
Both make $75k/yr.
$3k apiece contributed to IRAs
No HSA or FSA
Both paid 2x/wk. (26 times/yr)
No deducts of any kind, incl mortgage (for simplicity's sake, we'll forget state taxes as deductions)
Using the IRS's calculator we get a total tax liability between the two of you for 2012 of $23,185.
Now, we go with the same scenario and use the Tax Policy Center calculator
Using "Create your own example", choose "Patched 2012 law v. 2013 law". This calculator says your ttl tax liability for 2012 is $22,858, not much different from the IRS calculator figure.
But using the TPC figure: As you both get 26 paychecks/yr. together you both pay $879/2 wks. (or $439.50/2 wks. apiece).
Now look at the 2013 federal tax liability for you both together. It's $27,423, or $1,054/2 wks between you both (or $527/2 wks apiece).
% change in liability: 16.6 ($879/$1054 = .834; 1.0-.834 = .166)
Difference every 2 wks: $175, or $87.50 apiece/2 wks.
Now let's imagine you're "married with children" and have a mortgage. Dual income, 2 kids under 17 (but not under 13), $6k in pre-tax IRA contribs., and a house-albatross sucking $8k this and next yr. in interest from your income. Let's see how you fare for tax liability:
2012: $20,608
2013: $25,750
% change in liability: 19.97
Yes, even with kids and a mortgage, your % liability is *higher* than if you don't have these things. And as for the raw numbers, the 2013 figures are not much different from each other in the two scenarios. But as bad as this is, consider this: Assuming 40 hrs./wk. and 52 wks./yr. at work, a person making $75k/yr. is making $36/hr. Now, each person in the couple is paying $2,571 extra in 2013 vs. 2012. $2,571/$36 = 71.4. This added liability has both of you working just short of 2 weeks (80 hrs.)/yr. more for the federal gov't. But as bad as all this is, at least you can probably still keep your house and live mostly as you have before. You may not be able to save as much or will take a week's vacation in North Carolina instead of two weeks in Jamaica, but you won't be reduced to Ramen Noodles because of it.
But let's say you're single and don't make much money, perhaps a victim of the current job market and making a whole $8.00/hr. Assuming you never get sick or take so much as an hour off, working 40 hrs./wk. and 52 wks./yr., you gross $16,640/yr. Of course you rent and can't afford to contribute to an IRA (at what you get paid, you can barely live off it). Here's what the calculator gives you as your tax liability:
2012: $664
2013: $996
% change: 33
$ amt. change: $332 (i.e., 2% of all your income)
Think: $332/$8 per hr. = 41.5 hrs. If this is you, the gov't has just taken more than another week of your work income from you. That's another tiring week of flipping burgers, dealing with rude customers, and/or putting up with pinhead helicopter bosses-- on top of what they were taking before. So in your case, if Ramen Noodles weren't part of it before, guess what? They are now.
So think of this: someone who is making *squat* is getting shafted 33% more in 2013 vs. 2012. Tell me, does this sound right to you? I wonder, has anyone who was part of this new legislation's writing ever worked at a minimum- or near-minimum-wage job? If they have, apparently they've forgotten just how hard it is to make ends meet.
Anyway, this is just federal tax liability. Since the fed gov't often redistributes tax money back to the states (this is why state taxes seem so low; they're letting the feds do the dirty work! :) ), the states will have to make up the lost income from the program cuts that are also kicking in along with the fed tax hikes. This means higher fees and eventually higher state taxes (or in some states, higher taxes even in 2013). Also since taxes on businesses of all kinds are going up, esp. small ones (see http://smallbusiness.house.gov/news/documentsingle.aspx?DocumentID=303859 ), the cost of goods, etc. will also go up. The taxes on hlth insurance plans are set to kick in in 2014, too. (see http://ahip.org/Issues/January-1-2014-Provisions.aspx ) They are levied against the plan insurer but the costs will be passed on to the customer (i.e., the insured: you).
In short: higher taxes and fewer services from the gov't. And it seems no one is left out of the target zone except of course, as always, the rich and/or well-connected. Nothing much changes regardless of who's in office, ever notice?
It looks like Hell will freeze over a week before Congress averts the "fiscal cliff". (But if only there was an actual week to work with.)
Taxes: OK, here goes, as exciting as watching grass grow-- except when governmental incompetence and partisan immaturity starts costing you real money. (I guarantee it won't be costing the prez or anyone in Congress any real money; they have a way of writing themselves out of tax increase laws or just plain being so rich they don't really care about 5% here or there.) So here goes.
Let's say for argument's sake you are married and renting. And you're DINK yuppies. The details from a tax geek's POV are:
Married, joint return
Both working
No kids/deps
Both make $75k/yr.
$3k apiece contributed to IRAs
No HSA or FSA
Both paid 2x/wk. (26 times/yr)
No deducts of any kind, incl mortgage (for simplicity's sake, we'll forget state taxes as deductions)
Using the IRS's calculator we get a total tax liability between the two of you for 2012 of $23,185.
Now, we go with the same scenario and use the Tax Policy Center calculator
Using "Create your own example", choose "Patched 2012 law v. 2013 law". This calculator says your ttl tax liability for 2012 is $22,858, not much different from the IRS calculator figure.
But using the TPC figure: As you both get 26 paychecks/yr. together you both pay $879/2 wks. (or $439.50/2 wks. apiece).
Now look at the 2013 federal tax liability for you both together. It's $27,423, or $1,054/2 wks between you both (or $527/2 wks apiece).
% change in liability: 16.6 ($879/$1054 = .834; 1.0-.834 = .166)
Difference every 2 wks: $175, or $87.50 apiece/2 wks.
Now let's imagine you're "married with children" and have a mortgage. Dual income, 2 kids under 17 (but not under 13), $6k in pre-tax IRA contribs., and a house-albatross sucking $8k this and next yr. in interest from your income. Let's see how you fare for tax liability:
2012: $20,608
2013: $25,750
% change in liability: 19.97
Yes, even with kids and a mortgage, your % liability is *higher* than if you don't have these things. And as for the raw numbers, the 2013 figures are not much different from each other in the two scenarios. But as bad as this is, consider this: Assuming 40 hrs./wk. and 52 wks./yr. at work, a person making $75k/yr. is making $36/hr. Now, each person in the couple is paying $2,571 extra in 2013 vs. 2012. $2,571/$36 = 71.4. This added liability has both of you working just short of 2 weeks (80 hrs.)/yr. more for the federal gov't. But as bad as all this is, at least you can probably still keep your house and live mostly as you have before. You may not be able to save as much or will take a week's vacation in North Carolina instead of two weeks in Jamaica, but you won't be reduced to Ramen Noodles because of it.
But let's say you're single and don't make much money, perhaps a victim of the current job market and making a whole $8.00/hr. Assuming you never get sick or take so much as an hour off, working 40 hrs./wk. and 52 wks./yr., you gross $16,640/yr. Of course you rent and can't afford to contribute to an IRA (at what you get paid, you can barely live off it). Here's what the calculator gives you as your tax liability:
2012: $664
2013: $996
% change: 33
$ amt. change: $332 (i.e., 2% of all your income)
Think: $332/$8 per hr. = 41.5 hrs. If this is you, the gov't has just taken more than another week of your work income from you. That's another tiring week of flipping burgers, dealing with rude customers, and/or putting up with pinhead helicopter bosses-- on top of what they were taking before. So in your case, if Ramen Noodles weren't part of it before, guess what? They are now.
So think of this: someone who is making *squat* is getting shafted 33% more in 2013 vs. 2012. Tell me, does this sound right to you? I wonder, has anyone who was part of this new legislation's writing ever worked at a minimum- or near-minimum-wage job? If they have, apparently they've forgotten just how hard it is to make ends meet.
Anyway, this is just federal tax liability. Since the fed gov't often redistributes tax money back to the states (this is why state taxes seem so low; they're letting the feds do the dirty work! :) ), the states will have to make up the lost income from the program cuts that are also kicking in along with the fed tax hikes. This means higher fees and eventually higher state taxes (or in some states, higher taxes even in 2013). Also since taxes on businesses of all kinds are going up, esp. small ones (see http://smallbusiness.house.gov/news/documentsingle.aspx?DocumentID=303859 ), the cost of goods, etc. will also go up. The taxes on hlth insurance plans are set to kick in in 2014, too. (see http://ahip.org/Issues/January-1-2014-Provisions.aspx ) They are levied against the plan insurer but the costs will be passed on to the customer (i.e., the insured: you).
In short: higher taxes and fewer services from the gov't. And it seems no one is left out of the target zone except of course, as always, the rich and/or well-connected. Nothing much changes regardless of who's in office, ever notice?
posted by Matt Campbell at 11:57 PM
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