Fiscal Cliff 2013: What It Means For You


I really don’t enjoy receiving emails calling me a liar. So let us look at the facts together concerning the "fiscal cliff." The truth is, going back to the Clinton tax rates means a single filer earning less than $35,500 in adjusted gross income, would have to pay a maximum of $450 extra in federal income tax.  If you didn’t know that fact, please consider reviewing the balance of this very short essay.

Here, from the TaxPolicyCenter, is a table showing the relevant rates.

Not only will the majority of single filing U.S.taxpayers not be devastated by a massive tax increase returning to the Clinton rates, neither will married couples. The maximum a married couple would pay earning $59,300 in adjusted gross income would be basically $900.

In reality, both the single filer and the married couple will feel a greater impact from the expiration of the 2% FICA payroll tax holiday at a maximum from the prior example of $710 and $1,186 than by the expiration of the Bush era tax rates.

Now before my good Republican friends jump for joy, the truth cuts both ways. Examining the administration’s tax recommendations per bracket makes it appear President Obama actually supports Bush’s rates more than he opposes them.

But the cost of making the Bush rates permanent is examined in this Congressional Budget Office’s analysis of the taxes in President Obama’s 2013 budget proposal

When the CBO compares the president’s tax plan to what they call “the baseline,” which assumes the expiration of all the Bush tax cuts and the end of all the stimulus, the difference between the two plans is huge. Clinton’s tax code raises about $2.35 trillion more in revenues over 10 years than Obama’s tax plan.

The simple reason why the Obama plan comes up $2.35 trillion short of what returning to the Clinton tax rates is, in our progressive tax system, giving up the increase the rich would pay on their income before any tax change applies, costs the treasury the equivalent of a couple hundred billion per year over the entire decade.

Remember that people don’t pay a single tax rate. They pay different tax rates on brackets of their income. As example, a married couple making $400,000 who end up with an adjusted gross income of $325,000 would pay the Clinton-era rate on their income over $250,000 — which is, in this case, is $75,000. But they would pay the Bush rates on all the income under that, which is most of their income.

Give tax accountants and tax lawyers a little time, and you can bet they will find a way to make sure the wealthy shelter as much income as possible under the Bush rates while avoiding the president’s attempt to raise their taxes.