Fiscal Fall: How Bad It Can Be

Last updated on December 31, 2012

The country is facing a fiscal cliff because many of the tax cuts initiated in the Bush administration are now coming to an end. There will be key tax increases, and expiring of spending cuts and other tax cuts after 31st Dec, 2012. From 1st Jan, 2013, American taxpayers will be paying more in taxes to the government if no efforts are made to stop the tax changes from taking place.

If the country has a fiscal fall, there will be a reduction in consumer spending and a rise in tax collection of the government of around $500 billion annually, but at the cost of high economic price. Economists have warned that this might lead to recession.

Some of the areas in which taxpayers can expect to see increases in taxes include capital gains, investment, itemized deduction, personal exemption, Obama healthcare tax, alternative minimum tax and payroll taxes. If Obama and Congress are unable to do anything about the raised taxes, tax rates will go up from 10, 15, 25, 28, 33 and 35 percent to 15, 28, 31, 36 and 39.6 percent.

In 2010, President Obama, Democrats and Republicans had agreed to extend the tax rates to two more years. This time, they have been unable to come to a consensus regarding whether to extend the tax rates, to which income levels and at what rate. Till now, there is no agreement on it. From Jan 1st, many tax cuts will have expired.

Obama administration is looking at other ways to deal with the fiscal cliff if no agreement is reached with the Republicans. Obama wants to raise the debt ceiling to avoid the cliff. The Treasury Department has announced that the $16.4 trillion debt ceiling would be reached on Dec 31st, 2012.

With the start of the New Year, taxpayers will start paying more to the government. It is time the Obama administration takes swift action to save the country from falling off the cliff.