How might the fiscal cliff affect U.S. households? Learn more about the tax outlook for 2013.
The expiration of tax breaks and mandated cuts in federal spending – a combination of factors known as the fiscal cliff – could raise taxes by more than $500 billion in 2013, according to a report released yesterday by the Tax Policy Center. Middle-income households would see an average tax increase of close to $2,000 a year.
Households with low incomes would be most affected by the expiration of tax cuts passed during the Obama administration to stimulate the economy, while high income households will feel the effects of the expiration of Bush-era tax cuts and new taxes levied to support national health care reform. According to the center, marginal tax rates would increase 5 percent on labor income, 7 percent on capital gains and by more than 20 percent on dividends.
The tax increases and drop in government spending would reduce the federal deficit in 2013, according to the center, but the “macroeconomic tightening” could cause the economy to contract. Lawmakers could soften the effects of the fiscal cliff by delaying or offsetting tax hikes and spending cuts.
Without Congressional action, the estate tax would apply to more than 10 times as many households than in 2012, the payroll tax cut would expire and millions of additional taxpayers would begin paying the alternative minimum tax. The average tax increase across 90 percent of all U.S. households would be $3,500, according to the tax center.
Taxes count among the top concerns of affluent investors, those with a net worth of $100,000 or more, not including primary residence, according to Millionaire Corner research. More than three fourths (78 percent) of the most affluent investors – those with $25 million or more - say they are concerned about the prospect of tax increases. How do $25 million plus investors plan to address these concerns? More than half are considering tax-free bonds (60 percent) and estate plans (59 percent), or scheduling a meeting with a tax planner (55 percent). A significant share is considering charitable giving as part of a tax strategy (47 percent) or tax-advantaged life insurance (28 percent).
Policy debate, so far, indicates that legislators are considering further extending some tax breaks, thus moderating the impact of the fiscal cliff.