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Fiscal cliff

1,191 bytes added, 21:11, 17 November 2012
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In 2009, Congress enacted a stimulus bill that included a Making Work Pay tax credit that expired at the end of 2010. The 2010 budget agreement replaced that tax credit with a two-year temporary 2% reduction in the Social Security payroll tax. Instead of individual workers paying those taxes into the Social Security Trust Fund, Congress moved money from the general fund to replace those dollars. This added about $1,000 per year to the average worker's paycheck.<ref name=aarp>{{cite news|title=AARP pushing for retirement of Social Security payroll tax cut|work=Washington Post|page=A17|date=October 19, 2012|first=Suzy|last=Khimm}}</ref> Without further action, the Social Security deduction on paychecks will increase from 4.2% to 6.2%.
 
==Effects==
Letting these cuts expire would lead to higher taxes for every tax group. {{cquote|The existing 10% bracket will go away, and the lowest "new" bracket will be 15%. The existing 25% bracket will be replaced by the "new" 28% bracket; the existing 28% bracket will be replaced by the new 31% bracket; the existing 33% bracket will be replaced by the 36% bracket; and the existing 35% bracket will be replaced by the 39.6% bracket.}}
 
Capital gains will increase to 20% from 15%, the maximum tax rate on dividends will skyrocket to 39.6%. <ref>[http://www.smartmoney.com/taxes/income/how-the-expiring-bush-tax-cuts-affect-you/ What End of Bush Tax Cuts Would Mean for You, Smartmoney.com, May 12, 2012]</ref> Joint-filer (Marriage penalty) tax brackets will return to 167% of the amount for singles, causing higher tax bills for many low and middle income Americans. Phase-Out Rule for itemized deductions could eliminate up to 80% of higher-income bracket deductions for mortgage interest, state and local taxes, and charitable donations. Phase-Out Rule for personal exemptions could eliminate some higher-income bracket personal exemption deductions (typically average $3,800.).
 
==Democratic proposals==
President Obama proposed to extend the Bush tax cuts for all taxpayers on just the first $250,000 of annual income. On July 25, 2012 the U.S. Senate voted 51-48 to pass a bill supporting the President's tax proposal, while rejecting the Republican proposal of extending the tax cuts for all 45-54.<ref>[http://www.cnn.com/2012/07/25/politics/senate-tax-vote/index.html?hpt=hp_t1 CNN-Senate passes Democratic tax plan, rejects GOP version-July 2012]</ref> The U.S. House of Representatives rejected, 170-257, the President's tax proposal on August 1, 2012.<ref>{{cite web|last=Rubin|first=Richard|title=House Rejects Obama’s Proposed Tax Boost on Top Earners|url=http://www.bloomberg.com/news/2012-08-01/house-rejects-obama-s-proposed-tax-boost-on-top-earners.html|publisher=Bloomberg|accessdate=October 19, 2012}}</ref>
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