“fiscal cliff” on the news, and on various blogs, and how our economy would come to a crashing halt if our Government didn’t do anything by January 1, 2013. Since my knowledge in this area was limited I decided to do some research on the topic so I would be more informed, and understand how this impacted me.
What is the Fiscal Cliff?
According to my favorite resource Wikipedia, The Fiscal Cliff
is a term to mean what would happen at the end of 2012 when the budget control act of 2011
would go into effect. This term was mostly used by the media to scare us common folk, into thinking all hell will break lose if the Government didn’t come up with a solution. They had three options…
- Do nothing. This meant higher tax rates, reduced spending by the Government. Essentially Armageddon for us in the United States, BUT it would have taken a big chunk out of the deficit.
- Cancel the tax increases and spending cuts. This option would add to the already large deficit, but it will result in short term happiness because the economy would continue spending.
- Take the middle road. Modestly tackle the budget/tax issues, resulting in a modest impact on growth.
After procrastinating for 507 days the, with three hours before the deadline our Government decided on option 3. This is known as the Taxpayer Relief Act of 2012.
So…What is in the American Taxpayer Relief Act of 2012?
According to the Whitehouse there are seven things that you need to know about the American Taxpayer Relief Act of 2012
Don’t Forget About Payroll Taxes
The end of 2012 brought the end of the payroll tax holiday. This meant that the social security payroll tax that had been temporarily cut from 6.2% to 4.2% two years ago will go back to the higher level. According to Bloomberg Businessweek
a worker making $50,000 in 2013 will take home $38.46 less per two-week paycheck, or $1,000 per year.
Need to be money conscious
That bit of news about the increases in payroll taxes validated my reasoning behind creating this blog, and wanting to become more money conscious. I was curious to find out how much I would be impacted by the increased payroll increase, so I used a calculator from the Tax Policy Center
. It allows you to compare what it would have been if we would have gone off the cliff, compared to normal rates.
The amount that you would be receiving less per year may scare you, but if you break it down into a per paycheck amount it will be more manageable. Using the example above if you are taking home $38.46 less per two week paycheck that comes out to 9 Starbucks coffees, or one meal out at a restaurant. If those things bring you joy, you don’t have to cut them out completely, you just need to make compromises.
I just included snippets from my research, if you want to get the full scoop including the back-story I suggest you read this fiscal cliff
article from The Washington Post. They use gifs and charts to tell the story, and I have to say it made it easier to grasp. This little project has been really insightful, and taught me a lot. Like the Government I have a ways to go to, but I’m hopeful I will make it.
What are your thoughts on the fiscal cliff & the payroll tax increase? Share your ideas and suggestions in the comments.]]>