On Top of the Fiscal Cliff

Last updated on January 2, 2013

 Today is January 2, 2013.  Until now, the Obama administration and Congress have failed to come up with a fix for raised taxes that economists warned can lead to the fiscal fall. With the start of the New Year, there are now key tax increases and spending cuts expiring that will affect almost all American taxpayers. If no measures are taken to avoid the tax changes that have occurred, the country might fall off the fiscal cliff, leading to recession.

Lower tax rates and many of the tax cuts that expired in 2012 were introduced under former President Bush on a temporary basis. Obama administration and the Congress extended the tax rates and tax breaks that were to expire in 2010 for another two years.

In 2012, Democrats and Republicans were divided over which tax cuts to extend and to which income levels. They did not come to an agreement and with January 1st, 2013, tax rates have increased for most American taxpayers at the following rates: 15, 28, 31, 36 and 39.6 percent from the present 10, 15, 25, 28, 33 and 35 percent.

Along with an increase in tax rates, taxpayers will also see tax increases in other areas such as capital gains, investment, itemized deduction, personal exemption, Obama healthcare tax, alternative minimum tax and payroll taxes. These tax cuts were also introduced under the Bush administration.

The Obama administration is looking at alternatives such as raising the debt ceiling. The Treasury Department announced that the debt ceiling of $16.4 trillion will have reached on Dec 31st, 2012. To avoid falling off the fiscal cliff, Obama wants the debt ceiling raised. In the coming days, the Obama administration will probably come up with a solution to deal with the fiscal cliff and the threat it presents.