High-income earners, like those CPA Matt Lichtenberg sees, would be hardest hit if Congress does not reach a budget deal. Americans in lower and middle-income brackets would also be affected, as could the economy.
Americans are headed towards an “unprecedented tax increase” next year if Congress doesn’t do its job. It has to vote on a budget by Dec. 31, 2012 or millions could see higher taxes, according to a recent report. Congressional inaction, while helping decrease national debt, could likely have a larger implication as well: recession.
The report, released Oct. 1 by the nonpartisan Urban-Brookings Tax Policy Center, gave the dire warning. Nearly 90 percent of U.S. households will be adversely affected by tax cuts and new taxes. Moreover, the fiscal situation cuts across the economic spectrum, as a Los Angeles Times article reports.
Overall, Americans would pay $3,500 more in taxes next year, on average, from the $536 billion federal tax hike. Middle-income households would have an average tax increase of $2,000. The lowest-income households would pay around $400 more in taxes. Those in the top 1 percent—what the article calls “wealthier households”—would end up paying an average of $120,000.
“Every income group would see taxes rise by more than 3.5 percent of pretax income,” noted the report. “Upper income taxpayers would experience the largest tax increases, both in absolute terms and as a percentage of income.” For the top 1 percent, the tax increase would be slightly over seven percent.
Most households would see increased taxes due to the expiration of the temporary Social Security tax cut, or payroll tax. The 2001-2003 Bush tax cuts for low- and middle-income populations would also affect many. Those cuts, along with Obama-era stimulus changes, will expire on New Year’s Day. If allowed to expire, the cuts will be among the largest revenue increases for government—and the biggest decreases for taxpayers. The payroll tax and the 2001 to 2003 low- and middle-income provisions are included in the bulk of the “fiscal cliff.”
Following a mostly predictable pattern, low-income households would be especially affected by the expiration of the 2009 stimulus credits. Upper middle-income taxpayers would be affected by the alternative minimum tax (AMT) patch expiration. Lastly, high-income taxpayers would be affected by the Bush tax cuts that apply to high income levels. The latter group would be particularly affected by healthcare reform tax increases, as Matt Lichtenberg knows. That group is among the high net worth individuals financial planners like Matt Lichtenberg commonly sees, as they look to take advantage of present low rates and protect their assets.
Matt Lichtenberg is a CPA who has worked for many high-end clients. In addition to accounting, he provides business management and consulting through Level Four Business Management, LLC.