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The “fiscal cliff”

November 20th, 2012

As a responsible business person you are undoubtedly aware of the “fiscal cliff” being discussed in all the media. But you may not be aware of the details. Perhaps this Biz Law News will help.

Put directly, as of January 1, 2013 lots of tax law changes occur automatically unless Congress and the President can otherwise agree. These changes include

· All income tax brackets go up from the current range of 10% – 35% to 15% – 39.6%.

· Long term capital gain rates will increase from 15% to 20%.

· Dividends will be taxed as ordinary income, not the current long term capital gain rate.

· The 2% reduction in the Social Security portion of FICA goes away.

· Itemized deductions and dependent exemptions will be phased out for high AGI individuals.

· Various tax credits will return to former lower levels and stricter availability rules.

· Student loan interest will lose its deductibility.

· AMT thresholds will be reduced.

· A 0.9% increase in the Medicare tax on high income wage earners

· A new 3.9% Medicare contribution on unearned income of high-income individuals.

And as for federal spending, again the automatic sequestration of $500 billion+ in each of defense spending and domestic programs must begin in 2013, although Social Security, Medicaid and Medicare are exempt.

The non-partisan and well regarded Congressional Budget Office [CBO] in a May 2012 report concluded that all this would likely lead to a recession in the first half of 2013.

In my simple judgment this is a MESS. What can each of us do? Communicate with your President, your Senator, your Congressman or Congresswoman, and anyone else you think can contribute to a solution and impress upon them that it is not only their responsibility but their duty to do the People’s business and stop the partisan gridlock. There are solutions if smart people are committed to finding them.

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Disclaimer.

Biz Law News™ postings are provided for informational purposes only – they are not presented specific to any individual’s personal circumstances; they are not legal or tax advice and should not be construed as such.. They cannot in any way create an attorney-client relationship. Opinions and biases expressed or inferred are the author’s only. Believed-reliable third party materials are frequently used. Each reader, as appropriate, should seek independent advice from a tax or legal professional.

2012 © Gordon A Carpenter