Last Updated:September 2 @ 08:32 pm

Most in US won't be able to escape 'fiscal cliff'

By Christopher S. Rugaber

WASHINGTON (AP) - Everyone who pays income tax - and some who don't _will feel it.

So will doctors who accept Medicare, people who get unemployment aid, defense contractors, air traffic controllers, national park rangers and companies that do research and development.

The package of tax increases and spending cuts known as the "fiscal cliff" takes effect in January unless Congress passes a budget deal by then. The economy would be hit so hard that it would likely sink into recession in the first half of 2013, economists say.

And no matter who you are, it will be all but impossible to avoid the pain.

Middle income families would have to pay an average of about $2,000 more next year, the nonpartisan Tax Policy Center has calculated.

Up to 3.4 million jobs would be lost, the Congressional Budget Office estimates. The unemployment rate would reach 9.1 percent from the current 7.9 percent. Stocks could plunge. The nonpartisan CBO estimates the total cost of the cliff in 2013 at $671 billion.

Collectively, the tax increases would be the steepest to hit Americans in 60 years when measured as a percentage of the economy.

"There would be a huge shock effect to the U.S. economy," says Mark Vitner, an economist at Wells Fargo.

Most of the damage - roughly two-thirds - would come from the tax increases. But the spending cuts would cause pain, too.

The bleak scenario could push the White House and Congress to reach a deal before year's end. On Tuesday, Congress returns for a post-election session that could last through Dec. 31. At a minimum, analysts say some temporary compromise might be reached, allowing a final deal to be cut early next year.

Still, uncertainty about a final deal could cause many companies to further delay hiring and spend less. Already, many U.S. companies say anxiety about the fiscal cliff has led them to put off plans to expand or hire.

A breakdown in negotiations could also ignite turmoil in financial markets, Vitner said. It could resemble the 700-point fall in the Dow Jones industrial average in 2008 after the House initially rejected the $700 billion bailout of major banks.

Since President Barack Obama's re-election, nervous investors have sold stocks. The Standard & Poor's 500 index sank 2.3 percent last week, its worst weekly drop since June. The sell-off resulted in part from anxiety over higher tax rates on investment gains once the fiscal cliff kicks in.

Last week, Obama said he was open to compromise with Republican leaders. But the White House said he would veto any bill that would extend tax cuts on income above $250,000.

Republican House Speaker John Boehner countered that higher tax rates on upper-income Americans would slow job growth. Boehner argued that any deal must reduce tax rates, eliminate special-interest loopholes and rein in government benefits.

More than 50 percent of the tax increases would come from the expiration of tax cuts approved in 2001 and 2003 and from additional tax cuts in a 2009 economic stimulus law.

The first set of tax cuts reduced rates on income, investment gains, dividends and estates. They also boosted tax credits for families with children. Deductions for married couples also rose. The 2009 measure increased tax credits for low-income earners and college students.

About 20 percent of the tax increase would come from the expiration of a Social Security tax cut enacted in 2010. This change would cost someone making $50,000 about $1,000 a year, or nearly $20 a week, and a household with two high-paid workers up to $4,500, or nearly $87 a week.

The end of the Social Security tax cut isn't technically among the changes triggered by the fiscal cliff. But because it expires at the same time, it's included in most calculations of the fiscal cliff's effects.

And it could catch many people by surprise.

"Every worker in America is going to see a reduction in their paycheck in the first pay period of 2013," Vitner noted.

An additional 20 percent of the tax increase would come from the end of about 80 tax breaks, mostly for businesses. One is a tax credit for research and development. Another lets companies deduct from their income half the cost of large equipment or machinery.

Mark Bakko, a Minneapolis accountant, says many mid-size companies he advises are holding off on equipment purchases or hiring until the fate of those tax breaks becomes clear. Bakko noted that the research and development credit typically lets a company that hired an engineer at a $100,000 salary cut its tax bill by $10,000. The credit has been routinely extended since the 1980s.

The rest of the tax increase would come mainly from the alternative minimum tax, or AMT. It would hit 30 million Americans, up from 4 million now.

The costly AMT was designed to prevent rich people from exploiting loopholes and deductions to avoid any income tax. But the AMT wasn't indexed for inflation, so it's increasingly threatened middle-income taxpayers. Congress has acted each year to prevent the AMT from hitting many more people.

Under the fiscal cliff, households in the lowest 20 percent of earners would pay an average of $412 more, the Tax Policy Center calculates. The top 20 percent would pay an average $14,000 more, the top 1 percent $121,000 more.

All this would lead many consumers to spend less. Anticipating reduced sales and profits, businesses would likely cut jobs. Others would delay hiring.

Another part of the cliff is a package of across-the-board spending cuts to defense and domestic programs - cuts the CBO says would total about $85 billion. Congress and the Obama administration agreed last year that these cuts would kick in if a congressional panel couldn't agree on a deficit-reduction plan. The magnitude of the cuts was intended to force agreement. It didn't.

Defense spending would shrink 10 percent. Defense Secretary Leon Panetta has said those cuts would cause temporary job losses among civilian Pentagon employees and major defense contractors. Spending on weapons programs would be cut.

For domestic programs, like highway funding, aid to state and local governments and health research, spending would drop about 8 percent. Education grants to states and localities; the FBI and other law enforcement; environmental protection; and air traffic controllers, among others, would also be affected, the White House says.

Hospitals and doctors' offices could also cut jobs if an $11 billion cut in Medicare payments isn't reversed.

Extended unemployment benefits for about 2 million people would end. The extra benefits provide up to 73 weeks of aid.

"It would be nice if we could ... address these issues before the very last moment," said Donald Marron, the Tax Policy Center's director.

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16 Comments

  1. ladydaiComment by ladydai
    November 13, 2012 @ 2:43 pm

    So lowering taxes did help the economy and raising taxes will bring great harm to the economy.

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    Rating: 4.8/5 (17 votes cast)
    • dmttbt6Comment by dmttbt6
      November 13, 2012 @ 3:02 pm

      There will probably show that more people will be working to make up for the obama care causing part time now to be reduced to 30 hours. The businesses may have to hire more part time employees after cutting their 37 hour to 30 hours. however that is assuming there is going to be continued bussiness demand. I don’t that will be true and if it is it will not last long because businesses that have to put out more money to pay for obama care will pass those expenses on to the consumers.

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  2. brightlightComment by brightlight
    November 13, 2012 @ 3:11 pm

    All of this could have been avoided and we were almost there for ALL americans But:
    All aborters needed to be satified
    Abortion clinics needed to be funded
    Womens sexual habits needed to be protected and funded
    Bruce and Dave needed to get married
    Students wanted everything for free
    Latino community wanted it all for them illegal or not
    Food stamps rather than work prevailed
    No change in the energy policy was prefered
    Lies anout Obama Care were overlooked
    Benghazi questions were ignored
    Prefered being lied to by their own president
    Prefered being lied to by their own PRESS FAVORITES
    Democrats prefered eliminating God from their platform
    and prefering insulting the catholic church.
    Individual selfeshness ruled the day 11-6

    All the possible loss of income,jobs,escalating taxes causing greater pain to all the families,or persons of the groups listed above will be effected and they did’nt give it a thought AS LONG AS THEY GOT WHAT THEY WANTED. They will still expect everything to be paid for by their friend Barack. ITS NOT GOING TO HAPPEN.
    They believed a lie and now we are all in this because of them.If they thought class warfare was an issue wait until the warfare within their own families or groups takes root because of sheer destitution.They won’t be cheering ” Obama,Obama,Obama” They will be pleading “help us Barack,help us” and there will be no answer because there will be no money.

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    • redbudComment by redbud
      November 13, 2012 @ 4:02 pm

      Well said ! Unfortunately folks were looking to see what they will get out of him…you know all that “free” stuff, could not make them understand that it’s not “free” that someone will most definately be paying for it, their answer was “he’s going to tax the rich, they will pay for it”. How can you argue with stupidity/ignorance ?! They can not grasp the fact that we (the middle class) are going to be hurt the most. I don’t know how all this is going to end, but it aint gonna be pretty, a lot of us are already at the edge of the cliff and the next 4 years could see us going over….God Bless us all…..

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    • ptbaaComment by ptbaa
      November 13, 2012 @ 8:26 pm

      Yes, well stated brightlight!

      In the immortal words of Barack Hussein Obama, “Elections have consequences.” and “I won”.

      Now the left is going to learn that those are probably the only two times President Obama has ever told the truth!

      Elections do have consequences and he did win!

      Remember, it’s not the fall off the fiscal cliff that hurts. It’s the sudden stop at the bottom!

      Better get prepared, Amerika!

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    • petemossComment by petemoss
      November 14, 2012 @ 1:42 am

      Here is the problem with many Americans today: Who is the American Government? If you think it is the politicians in Washington, you are wrong!(but that is what most Americans thing) Read the first sentence of our American Constitution! “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.” I do believe that you and I ( the American people) are government. If you want the government to provide for you, then you had better dig deeper into your our pocket to pay for it. Our government gets the money it spends through taxation (okay right now we are borrowing, and it is mostly from China 9.8%). America wake up! We need to stop the bleeding! We can not keep buying what we want on credit. Think about the latest budget that Congress passed and the President signed saving 4 trillion dollars over the next 10 years. What saving is that? The interest on the National Debt is over $350 billion, and saving of 4 trillion over ten year is $400 billion. It’s not less $50 billion to go against the debt, and we call that saving? If you and I ran our households the way the government is running right now, we would be in prison. We need to make some changes on how we are doing things. Do I have all the answers? “NO”! But have to do something to change the current direction in which we (America) is heading.

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    • pudgyComment by pudgy
      November 14, 2012 @ 10:36 am

      Too bad Sandy didn’t hit Washington, DC, head on and wipe it clean instead of the NJ coast. There is no escape for us except (and I won’t say what due to monitoring of this by the Feds), but there will come a time when this too shall pass.

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    • yoldsComment by yolds
      November 19, 2012 @ 6:14 am

      brightlight, you are so right, people decided to buy the lie and reject fiscial sanity. What I fear the most is when the money DOES run out. These same freeloaders will be screaming for their goodies and there will be no other action left for them but to riot. The same Blue States that voted for Obama will be where the fighting starts. God Help us all when this happens, I say WHEN not IF because the money WILL run out! Be ready, be prepared….

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  3. starblueTNComment by starblueTN
    November 13, 2012 @ 3:25 pm

    This is only the beginning of what evil obama meant when he used Hitler’s phrase “FORWARD”. Too many people are so easily deceived and misled….like sheep led to the slaughter house. And then you have those who are lazy and just want the government to support them. They are so blind. What do they think is going to happen when those of us who are supporting them against our will no longer have jobs because obama’s law that is under the heading of “healthcare” costs companies so much that we who would rather earn our own living are out of work too ? They don’t have a clue. And the others who appear to be intelligent that voted for him have no discernment whatsoever. The Democrat Party is not what it once was. It is mostly a Communist Party now. That’s how he is still in office. It’s certainly NOT because only the honest votes were counted. There are still some of us who are not naiive, deceived, or stupid !

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  4. kdm11Comment by kdm11
    November 13, 2012 @ 4:32 pm

    The outcome of the election indicates that they don’t want to support small businesses. I thought afterwards that like minded people should support small business and do our Christmas shopping from companies to support them. Unlike liberals we are doing it for a positive to help someone instead of what they are doing, which is trying to suppress someones freedom of speech. Remember liberals, some of us work and have WAY more money than you do. I will not spend another cent at a liberal business. I hope everyone else looks at who they are buying from this holiday season.

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    • lindseyComment by lindsey
      November 13, 2012 @ 5:43 pm

      KDM11: With NO OFFENSE, I can tell by your COMMENT you don’t know about THE UN ADGENDA 21 PLAN. The Communist Party USA started it 60 plus years ago by infiltrating every part of Government, Schools, Education, Organizations, etc. currently they are in Government – in CHARGE. PLEASE get informed and educated on it like many of us have in the pass 2 to 3 years that have woke up to what is happening, why it’s happening and what’s coming down the pipe.
      Start here: GOOGLE “Tom DeWeese Agenda 21″, Search on YouTube ‘Agenda 21′ (and do follow Tom DeWeese please to keep learning what’s around the corner for YOU).
      May GOD Bless YOU.

      P.S. Small Businesses are an EASY Target by a Government to Bring Down! “The UN AGENDA 21 PLAN” has ALL you need to know.

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    • yoldsComment by yolds
      November 14, 2012 @ 1:49 pm

      Lindsey, You are 100% correct! The worse part about it is they started in the schools and we allowed it, now those folks grew up and their children are being indoctrinated. Private schools are way better. My kids went to catholic school for 7 years, when we moved it was no longer an option so off to public schools they went. They were astonishingly 3 grades ahead of their age, but were NOT allowed to bypass not ONE grade. They were dumbfounded and in awe at the liberal mindedness of the kids around them. Parents wake up and teach your kids, debreif them constantly, they are being brainwashed in our public schools!

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  5. 1nervous1Comment by 1nervous1
    November 13, 2012 @ 4:46 pm

    So all of this could have been avoided, but the Bonehead LIBS voted their anointed one back in office! I have an idea … Since they wanted him, let them foot the bill.

    I seriously cannot even begin to understand how a failed POTUS could win re-election with all the facts to prove that he was a failure. I just don’t get it!

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    • justperhaps45Comment by justperhaps45
      November 13, 2012 @ 4:59 pm

      The racist and unproductive freeloaders voted to get more of our money. I wonder how they will like when the shortages kick in because those of us who produce may not be willing to take risk and work long hours without fair profit.

      I know we will have fewer people on the payroll. Our customers can’t afford to pay the cost of standby employees.

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  6. BobinmsComment by Bobinms
    November 13, 2012 @ 4:50 pm

    If we don’t do something we will have a crash and the dollar will be worthless. That will be easy to analyze and identify who will be hurt. The answer is EVERYBODY!

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    • pudgyComment by pudgy
      November 18, 2012 @ 11:14 am

      We have one last chance, 2014, to replace those up for election in the Senate who are bleeding heart liberals with Americans who want to keep this country as the Founders visualized it.

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