The new political gospel: public office is private graft. — Mark Twain
Fiscal cliff is an omnipresent term discussed often in the media lately. It reminds me of a famous phrase: stuck between the rock and a hard place. Indeed, our government has a tough act to balance.
What is the fiscal cliff? It is nothing but culmination of the poor budgeting and reckless spending by our government officials. If you spend more than your income, a day of reckoning will force you to make more money and spend less. That’s exactly what will happen on January 1st, 2013.
When you deal with your own fiscal cliff, you have to find another job to increase your income or to scale down your lifestyle to cut spending; when our government deals with a fiscal cliff, it can take more money out of your pocket without your consent. It would be nice if you can demand more salary from your employer to pay for your poor money management skills. So, I have lots of respect for politicians for having skill to manage their own personal finances with a different mindset than how they deal with our nation’s finances.
How Fiscal Cliff Impacts Your Wallet
In a layman term, fiscal cliff will trigger $1 trillion in spending cut over the next 9 years. It will also cause Bush tax cuts to expire. If you think that only rich will feel the impact of expiring Bush tax cuts then you are up for the rude awakening.
Your income tax will go up no matter how much you make. If you are in 10%, 15%, 25%, 28%, 33% or 35% tax bracket, you will move up to 15%, 28%, 31%, 36% and 39.6% respectively. That translates into tax hike of $1154.5 for a family making less than $35,350 a year. Think about the impact the tax hike will have on our economy which is growing at an anemic rate.
The Social Security tax rate will revert back to 6.2% from the current 4.2%. That’s the share you pay in addition to what your employer pays to IRS. Anyone making $50,000 a year will see $1,000 raise in their Social Security taxes starting January 1st, 2013. Considering that Social Security tax is assessed only on the first $110,100 in realized income, someone making $50,000 will feel a sucker punch more so than someone making $500,000.
Alternative Minimum Tax for the year 2012 will fall to $33,750 for individuals and $45,000 for married couples; that’s down from $50,600 and $78,750, respectively.
Medicare payment rate for doctors will be reduced by additional 27%. Many of my doctor friends have indicated that they will have to resort to forcing patients to visit more than required to survive these drastic cuts. If that’s the case then those of you on Medicare might be visiting your physician more often than ever before.
I am ceaselessly amazed at how the media and politicians talk about raising revenue(AKA taxes) to make us pay for squandering our hard-earned money for decades.
I understand why everyone is passionate to raise taxes on those who earn more than $250,000, but raising taxes on those who run small businesses will put brakes on our economic growth; worst yet, it may drag us into another recession.
The Perfect Solution
We can bring our paralyzed economy back into a roaring state simply by enacting fair tax and by allowing oil and natural gas exploration across this great nation. Okay, it may not be a perfect solution but definitely close to it.
Fair tax will take away ability from these skilled politicians to pick and choose winners and losers based on what they think is the best for our nation. Do you know how to handle your money well or your congressman?
Most of the soap opera that you are watching on television when two parties act as if each has nation’s interest at its heart, it makes you wonder.
We don’t need elites to run Washington. It’s apparent — from the poor state of our national finances — that we need street smart politicians who can think of common sense solutions to lead our nation out of this fiscal cliff.
Readers: Have you thought about how this fiscal cliff will impact your wallet? If so, please share your thoughts.
What Is the Fiscal Cliff? @ Barbara Friedberg Personal Finance
Solution to the Fiscal Cliff: Time to Start Investing? @ Financial Samurai
Personal Loans Aren’t Always Bad Debt @ Modest Money
Buy Nothing Day @ My Money Counselor
Photo by: DonkeyHotkey