The American Fiscal Cliff, Disability and 2013 Tax Rises
Author: Disabled World
Published: 2012-11-22 - (Updated: 2016-03-27)
Article looks at what the US fiscal cliff is and the tax effects on Americans including people with disabilities and those with entitlement benefits.
The risks associated with the fiscal cliff are very much with us, growth may pull back and American households may see their taxes increase by an average of US$3,446 in 2013.
Fiscal Cliff - Investopedia.com defines "Fiscal Cliff" as a combination of expiring tax cuts and across-the-board government spending cuts scheduled to become effective Dec. 31, 2012. The idea behind the fiscal cliff was that if the federal government allowed these two events to proceed as planned, they would have a detrimental effect on an already shaky economy, perhaps sending it back into an official recession as it cut household incomes, increased unemployment rates and undermined consumer and investor confidence. At the same time, it was predicted that going over the fiscal cliff would significantly reduce the federal budget deficit.
So What is the Fiscal Cliff
Fiscal cliff is the popular term used to describe the conundrum that the American government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect. The term "Fiscal cliff" is said to have been coined by Federal Reserve Chairman Ben Bernanke.
If the current laws slated for 2013 go into effect, the impact on the U.S. economy could be dramatic. The CBO estimates that the policies set to go into effect would cut gross domestic product (GDP) by four percentage points in 2013, sending the American economy into a recession. The chairman of the US Federal Reserve, Ben Bernanke, has warned that the fiscal cliff poses a "substantial threat" to economic recovery in America. Time is running out and the bill for generations of political blunders is due.
According to the U.S. debt clock (www.usdebtclock.org) America's national debt now exceeds $16 trillion! (See below for real time clock)
Laws set to change on Jan 1st 2013 include:
- The end of the tax cuts from 2001-2003
- End of last year's temporary payroll tax cuts
- The end of certain tax breaks for businesses
- Shifts in the alternative minimum tax that would take a larger bite
- The beginning of taxes related to President Obama's health care law.
- Spending cuts agreed upon as part of the debt ceiling deal of 2011 will go into effect.
- Over 1,000 government programs - including Medicare and the defense budget and are in for large automatic cuts.
Low income Americans, seniors, and people with disabilities are bracing for devastating spending cuts to necessary entitlement programs Republicans hope to push as part of a deal to avert the fiscal cliff early next year. Advocates from a range of disability groups say the cutbacks could have a devastating impact on people with disabilities affecting everything from special education to employment programs. "Medicaid, Medicare, Social Security and Supplemental Security Income, which are lifeline programs for people with disabilities, should not be at risk in these budget negotiations," said Peter Berns, CEO of The Arc, who urged President Obama to "keep our nation's commitment to people with disabilities."
If new U.S. legislation to address the U.S. fiscal cliff isn't passed by the end of 2012, American taxpayers in the top income bracket would see their tax rate paid on dividend income almost triple to 43.4% from 15%. U.S. dividend-paying stocks should remain healthy despite growing concerns about the fiscal cliff and a potential change in the dividend tax rate south of the border, analysts say. The United States could also lose its AAA credit rating if steps are not taken to reduce the national debt. Such a downgrade could harm economic confidence and growth down the road.
Some Effects Include:
- Stocks could plunge.
- Extended unemployment benefits for about 2 million people would end.
- American households may see their taxes increase by an average of US$3,446 in 2013.
- Hospitals and doctors' offices could may cut jobs if an $11 billion cut in Medicare payments isn't reversed.
- Middle income families would have to pay an average of about $2,000 more next year, the nonpartisan Tax Policy Center has calculated.
- The Congressional Budget Office estimates up to 3.4 million jobs would be lost with unemployment rate reaching 9.1% from the current 7.9%.
- The White House says, Education grants to states and localities; the FBI and other law enforcement; environmental protection; and air traffic controllers, among others, would also be affected.
- Under the fiscal cliff, households in the lowest 20% of earners would pay an average of $412 more, the Tax Policy Center calculates. The top 20% would pay an average $14,000 more, the top 1% $121,000 more.
- Effect on pensions will come mainly from the expiration of the 10% tax bracket that applies to the first $8,900 of taxable income (double for couples). There are other small changes, but not much that will affect low-income retirees living on pensions.
Other gloomy economic forecasts for the United States include entitlement programs which are beginning to face insolvency with Social Security Disability Insurance depleting in 2016, Medicare in 2024 and Social Security by 2037. U.S. entitlement programs include Social Security, Medicare, Medicaid, and means-tested welfare programs, veteran benefits, unemployment pay, disability pay, and more.
The pending insolvency of Social Security Disability Insurance (SSDI), which currently covers over 10 Million Americans was the topic of a 2012 report from the Congressional Budget Office (CBO) showing SSDI benefits will increase 70% over the next 10 years. The report raised the alarm that the SSDI trust fund will go bankrupt by 2016. The disability insurance program paid out $119 billion to 8.3 million recipients in 2011, accounting for approximately 18% of all Social Security spending. It is projected to pay out $140 billion to over 10 million Americans by the end of 2012. The department expects that number to jump to $204 billion - an increase of 71 percent, approximately - as the number of disabled workers and dependents receiving money increases to 12.3 million by 2022.
Black Friday is known as one of the busiest shopping days of the year in America.
The International Council of Shopping Centers estimates 41 million Americans will hit stores on Thursday (about 17% of all consumers), and roughly twice as many shoppers will be out on Friday, and it couldn't come at a more crucial time for the economy. As more folks become aware of the potential tax increases (and by extension the negative implications to their own pocketbooks) the reticence to spend will increase.
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