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FACTBOX-U.S. 'fiscal cliff,' tax impact of no deal

Source: Thomson Reuters Foundation - Mon, 31 Dec 2012 18:02 GMT
Author: Reuters
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By Kim Dixon and Kevin Drawbaugh

WASHINGTON, Dec 31 (Reuters) - Higher federal taxes for millions of businesses and individuals will become law on Tuesday unless Congress acts to stop them. These taxes, worth ${esc.dollar}500 billion, comprise the bulk of what is known as the "fiscal cliff" problem.

The following shows the probable impact on taxpayers if Congress does not act on Monday, or does not come back later and undo these tax increases, based on data from the nonpartisan Tax Policy Center.

INDIVIDUAL TAXES

If midnight passes with no deal, lower individual tax rates enacted in 2001 on a temporary basis under former President George W. Bush will expire on Dec. 31.

The income tax brackets will rise to 15, 28, 31, 36, and 39.6 percent from the current 10, 15, 25, 28, 33 and 35 percent for nearly 160 million taxpayers.

The poorest fifth of taxpayers, about 40 million households, will see an average tax increase of about ${esc.dollar}412.

The most affluent fifth, about 23 million taxpayers, will typically pay about ${esc.dollar}14,173 more in income tax.

The wealthiest 1 percent, about 1.1 million taxpayers, will see an average tax hike of about ${esc.dollar}120,000.

PAYROLL TAX

About 160 million workers will pay higher Social Security payroll taxes. The rate goes up to 6.2 percent on Jan. 31 when the current, temporary 4.2 percent rate expires. The lower rate was extended in 2012 to give workers a little extra in their paychecks as a way to boost the economy. Unlike some of the other tax measures, there appears to be little interest from Republicans or Democrats in continuing the lower rate.

INVESTMENT TAXES

The capital gains tax rate will rise to 20 percent from 15 percent for most taxpayers who have income from gains on their investments. The tax rate on dividends will rise to the top income tax rate, 39.6 percent, from the current 15 percent dividend tax rate.

ESTATE TAX

The estate tax will rise to 55 percent from 35 percent. The value of assets exempted also drops to ${esc.dollar}1 million per person from its current ${esc.dollar}5 million per person.

ALTERNATIVE MINIMUM TAX

About 27 million Americans could be required to pay the alternative minimum tax (AMT), a tax that initially was intended to make sure the wealthy paid some tax. The AMT fix that Congress has enacted annually had resulted in only 4 million Americans paying the AMT.

UNEMPLOYMENT BENEFITS

About 2.1 million long-term unemployed Americans will see their extended jobless benefits cut off as of Jan. 1, according to the National Employment Law Project, an advocacy groups.

EXTENSIONS OF TAX BREAKS

A mix of tax breaks for individuals and businesses worth tens of billions of dollars annually, including the research and development tax credit for business, will lapse. These include deductions for payments of state and local taxes and tax benefits for college tuition.

MEDICARE PAYMENTS TO DOCTORS

Doctors treating elderly and disabled patients who make up the Medicare population will see a double-digit cut to in rates paid by the federal government health care program. Medicare patients could have a tougher time finding doctors who will treat them.

(Editing by Fred Barbash and Jackie Frank)

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