It appears that automatic federal tax increases and budget cuts will occur Jan. 1, CNN reported.
The so-called fiscal cliff is a crisis created out of politics. Without congressional action, the Bush tax cuts will disappear and tax rates will rise across the board. According to the National Federation of Independent Business, the 10 percent tax bracket will disappear. Also, the 25, 28, 33 and 35 percent rates would become 28, 31, 36 and 39.6 respectively.
A single person with two exemptions earning $50,000 per year will see income taxes increase from $7,103 to $8,551 per year, according to a fiscal cliff calculator published by Bankrate.com. If you want to know the affect on your income, use the Bankrate.com calculator to plug in the numbers specific to you.
The Washington Post also has a calculator, letting people see the impact of Demcoratic and Republican proposals.
The Huffington Post reports that the increases would impact nearly every American and generate $536 billion in revenue, and there also would be significant budget cuts, including 9 percent of the Pentagon's budget.
The Congressional Budget Office predicts that without congressional action the fiscal cliff will trigger a recession in 2013. A copy of the CBO report is attached to this post.
The CBO report states that if the fiscal cliff measures go into place GDP will rise by 0.5. If it does not go into place, GDP would rise by about 4.4. However, the report also noted that in the long-term, the U.S. does need to get its trillion dollar budget deficit under control.
"...[E]liminating or reducing the fiscal restraint scheduled to occur next year without imposing comparable restraint in future years would reduce output and income in the longer run relative to what would occur if the scheduled fiscal restraint remained in place."
The nation is facing the fiscal cliff as a result of a deal reached by Republicans and Democrats during the debt ceiling fight in 2011. At the time, it was thought that the fiscal cliff contained things that both parties disliked so much, that a long-term deficit reduction deal would be worked out.
That has not happened.
President Obama's initial plan included freezing tax rates for the vast majority of the country. Tax rates on income earned above $250,000 would rise, CNN reported. Obama also has proposed some spending cuts in an effort to reduce the budget deficit without hurting the economy.
Obama's latest offer increased the income above which the tax rate increase would hit to $400,000, the Huffington Post reported. It also included more cuts in spending and an adjustment to the Social Security inflationary index.
Republican House Speaker John Boehner came up with a plan in which tax rates on income above $1 million would rise, however, Boehner failed to get his own party to support the plan in the House. Aside from shooting down any tax rate hike, Republicans have wanted more changes to programs such as Medicare, such as increasing the eligibility age from 65 to 67 – something Obama has said is a nonstarter.
The Republicans also would end the payroll tax cut that was implemented in 2009 and reduce the size of the earned income tax credit.
The Washington Post has a detailed analysis of both plans.
Patch Local Editor Steve Sadin contributed to this post.