On today's Money Monday, David Seeger, President & CEO of Great Lakes Credit Union, shared his knowledge on the fiscal cliff and what it will mean to Americans come January 1, 2013.
The national debt ceiling was raised in August 2011, and it will need to be raised again in February 2013. As a result of that deal, an effort was to be made to have sweeping reform in tax bills that would greatly reduce the deficit in a rational fashion. But, this failed to occur. As part of that agreement, there will be an automatic trigger of forced, more radicalized increases of taxes and cuts beginning January 1, 2013. This part of the agreement is referred to as "sequestration" and these are designed to radically cut the deficit by 1 trillion+ over 10 years.
Here is how this will impact the American people:
- Tax rates for every income group will rise to levels not seen since 2001 (Bush tax cuts as they are called). The current 10%, 25%, 33% and 35% rates will shift to 15%, 28%, 31%, 36% and 39.6%, a return to levels where they were prior to the Bush tax cuts.
- The tax on long term capital gains will go from 15% to 20%.
- Some 3 million Americans will lose longer term unemployment benefits
- The Pentagon will start 2013 with a $55 billion budget cut and then also a matching non-defense budget cut will commence for discretionary spending.
- The marriage penalty for joint filers will return.
- The child tax credit will drop from $1,000 back to $500.
- The social security payroll tax (FICA) will go back up to 6.2% of your paycheck from the current 4.2%. It was dropped to help stimulate the economy.
- The effects of the Alternative Minimum Tax will be felt again.
- This is why they call this taxmaggedon.
And what will this do for the economy? It is estimated this will slow the economy (GDP) by 4 percent, according to Moody's Analytics and also the former Office of the Management and Budget Director, Peter Orszag. With the current GDP around 2 percent, this will put us into negative GDP territory sometime during the year in 2013, which will spell another recession. This is totally feasible, as the economy is weak and this impact could put us right back into a recession. This is not fear mongering, but rather, reality in the making. The Chairman of the Federal Reserve warns against this fiscal cliff and warns of a "fiscal policy induced" recession that would result if these measures not be modified.
Visit www.budgethero.org where you can make Federal budget choices and see how it will affect the national debt, etc.
To contact David Seeger, visit his company's website by clicking here.