Breakdown of how a fiscal cliff fiasco would impact your budget
HOUSTON (KTRK) -- Lawmakers are facing a financial crisis, looking to cut the national debt and extend tax cuts. But so far, they aren't able to come to an agreement on anything.
Congress is adjourned until next week, so talks are pretty much on hold. But if no deal is reached by December 31, you may have to pay thousands more in taxes, and that could put some extra strain on your budget.
The worst-case scenario is really bad. It means some Texans could pay as much as 44 percent of their income in taxes, and it could come from the four elements of the fiscal cliff:
- The Medicare tax, which affects mostly wealthier taxpayers
- The payroll tax, which affects everyone
- The AMT, which impacts most taxpayers
- The Bush cuts, which are set to expire
A lot of times it's hard to figure out how Capitol Hill really impacts us here in southeast Texas. But when you look at the debate over that fiscal cliff and your taxes, the impact is pretty clear: If there's no deal, all of us pay more.
"I'm hoping that Congress and the president can get their act together and they'll work something out," Houston taxpayer Sherry Bolton-Phillips said.
There are a lot of numbers to plow through, but look at these first:
The Tax Policy Center says the increase ranges from a few hundred dollars for the working poor to thousands for the so-called middle class.
The White House estimates here in Texas, 8.7 million middle-income earners will see an average increase of about $2,200.
"It could be your Catholic school tuition's payment for your child, so it's not a small amount of money," said Joe Birkhofer, a partner at Legacy Asset Management.
Birkhofer says the part of the cliff that impacts everyone is the expiring Bush tax cuts.
"People in the lowest tax bracket, 10 percent, will go to 15 percent. And people in the highest tax bracket will go from 35 percent to 39.6 percent," Birkhofer said.
At just 3 percent a year, that's the equivalent of no less than a tank of gas every two weeks.
"I don't think that's fair to pay 3 percent more. We all can't afford three percent more," Houston taxpayer Judy Madison said.
Then everyone can tack on another 2 percent -- the amount of the payroll tax holiday which, ends this year. It's money that goes to Social Security and Medicare.
"The problem is the money needs to go back into Social Security and Medicare, and there's not a lot of support on either side of Congress to make that tax holiday stay," Birkhofer said.
Add that 2 percent to the pile, and you've lost money for your electricity bill every month.
"And I don't have a lot of confidence that both sides are really eager to fix the problem," Houston taxpayer David Gaw said.
Then there's the alternative minimum tax, or the AMT, which needs adjusting every year or it costs millions of taxpayers millions of dollars.
"It strips away deductions so that your tax rate is higher," Birkhofer said.
Throw those away, and there go your groceries every week.
"I'm worried not about 3 to 5 percent but more about 10 to 15 percent," Houston taxpayer Christopher Barron said.
And none of those numbers even include that fourth element, which isn't up for debate. We're talking about the tax from the Affordable Care Act -- Obamacare. It taxes by as much 4.7 percent for individuals making over $200,000 a year, or $250,000 for families. And that money is not taken out of paychecks. It's on income that's already been taxed once.
national/world, tom abrahams
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