Story Idea: How Will the Fiscal Cliff Affect the Middle Class?

By Ryan G. Murphy, RTDNA
With rising Democratic opposition to cuts in social spending and Republican leaders reiterating their opposition to raising taxes on the wealthy, talks on avoiding the fiscal cliff were at a standstill this week, according to a Reuters report.
According to the Reuters report, officials on both sides of the debate say the political jockeying is likely to continue this week. But they warn that the details of a compromise must emerge next week if an agreement is to be reached in time. 

Where the term "fiscal cliff" came from, according to the New York Times: "The term refers to more than $500 billion in tax increases and across-the-board spending cuts scheduled to take effect after Jan. 1 — for fiscal year 2013 alone — unless Mr. Obama and Republicans reach an alternative deficit-reduction deal. Ben Bernanke, the chairman of the Federal Reserve, who is not known for catchy phrases, coined the metaphor “fiscal cliff” last winter to warn of the dangerous yet avoidable drop-off ahead in the nation’s fiscal path. It stuck."

What the "fiscal cliff" means for your audience: As outlined in the Reuters report, "while potential tax increases on the rich have dominated the political debate, a raft of taxes on the middle class will increase if an agreement is not reached. The scope will vary, depending on a person's income. White House officials estimate that the average American family will pay $2,200 more in taxes next year if an agreement is not reached. But, if an agreement is not reached at all, even after the January 1 deadline, the increase could be higher, particularly for households that make over $100,000 a year."

And according to a report by, "how much taxes rise depends on how much a taxpayer makes. The typical middle-class taxpayer would pay $2,000 more, according to the nonpartisan Tax Policy Center. People who earn the lowest fifth of all incomes would pay about $400 more, while the top percent could see a $121,000 jump in taxes."

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How the Fiscal Cliff  Could Affect the Middle Class, According to Reuters

Alternative Minimum Tax: An obscure tax created in the 1960s to ensure that the super-wealthy paid a minimum amount of tax, inflation and other factors have resulted in the AMT now applying to the four to five million Americans who make $200,000 to $1 million, according to the Washington Post. In recent years, Congress has enacted a "patch" that prevents the AMT from applying to Americans who make less. Unless an agreement is reached, no "patch" will be enacted, and another 31 million Americans will have to pay the tax.
The non-partisan Tax Policy Center estimates that over half of all married couples will owe an additional $4,000, the Post reported. And a third of families with children will have to pay the AMT as well; with parents of three or more children will face an extra tax of up to $4,700.
The center estimates that 84 percent of married couples that make a total of $75,000 to $100,000 and have at least two children will pay a significantly higher tax bill this year because of the AMT.
The impact would be much higher in some areas, with the number of AMT-paying taxpayers in New Jersey rising to 50.3 percent, the highest rate in the country, according to the Post. And the percentage of taxpayer paying the AMT in California, New York and Connecticut would rise to over 30 percent.
Given the breadth of the potential AMT increases, experts predict that Congress will enact and "patch" even if a broader agreement is not reached. For middle class families, let's hope they are right.
Payroll tax: A payroll tax holiday that was enacted in 2010 is set to expire, according to the Fiscal Times. The tax holiday cut employee Social Security contributions by two percent for households that make less than $110,00 a year. The end of the measure could mean that the average American family pays another $1,000 in taxes per year.
Deductions: Increases in deductions that were part of the Bush tax cuts will expire. Marginal tax rates will change as well, as described in this Washington Post piece. Exactly how this will play out for families depends on multiple factors. One calculator that could help you estimate the impact on your family is here.

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