Retirement Blog

Finance Blogs » Retirement » Retirement hangs on fiscal cliff

Retirement hangs on fiscal cliff

By Jennie L. Phipps · Bankrate.com
Monday, November 12, 2012
Posted: 1 pm ET

If we fall off the fiscal cliff, retirees could face a 17 percent increase in their 2013 income taxes, predicts CFP professional Leon LaBrecque, a lawyer and certified public accountant.

LaBrecque weighed the impact of eight unpleasant financial problems he believes retirees -- and those on the brink of retirement -- are most likely to encounter as a result of the nation sliding over the cliff. He estimates the dollar impact and predicts the likelihood of Congress passing a solution.

He says that for retirees and those doing retirement planning, "The most dangerous one of all is the expiration of the Bush tax cuts because it changes everything."

Here's his list:

  1. Expiration of the Bush income and estate taxes ($246 billion impact). This will hit everyone who pays income taxes and anyone whose estate is over $1 million. The fix: Extend all or some tax brackets and extend the current estate tax limits. Probability of Congress taking this step: very high.
  2. Alternative minimum tax, or AMT, patch ($50 billion impact). This law was designed to extract money from millionaires who wiggled out of paying taxes. The AMT isn't indexed for inflation, so now it is hitting some people who make as little as $40,000. The fix: another patch. Probability of it passing Congress: very high.
  3. Sequestration ($109 billion impact). These federal spending cuts were mandated by Congress last year as part of a deal to raise the nation's debt ceiling. Social Security and Medicaid aren't affected, but Medicare Part D could get a 2 percent haircut, pushing up what Medicare recipients pay. The fix: new budget cuts. Probability of these passing: slightly above zero.
  4. Expiration of the payroll tax holiday ($115 billion impact). President Barack Obama cut payroll taxes by 2 percentage points to stimulate the economy. The fix: Extend the cuts. Probability of passage: slight.
  5. Unearned income Medicare contribution tax ($24 billion impact). This affects singles with incomes greater than $200,000 and couples with incomes greater than $250,000. The fix: Repeal the Affordable Care Act. Probability: subzero.
  6. Expiration of the debt ceiling ($300 billion impact). The whole world would feel the pain if the U.S. couldn't borrow. The fix: Raise the debt ceiling. Probability of passage: good.
  7. Doc fix ($15 billion to $22 billion impact). Physicians who treat Medicare patients will take a sharp pay cut. The fix: Adjust Medicare pay guidelines. Probability of passage: maybe. (Docs can afford good lobbyists.)
  8. Small-business and stimulus tax breaks ($27 billion impact). This involves a host of small tax breaks, including the individual retirement account charitable rollover, which allows people older than 70½ to make mandatory IRA withdrawals by sending the money directly to a charity. These donations aren't tax-deductible, but neither do they count as income, which could result in higher taxes on Social Security or higher Medicare premiums. The law expired last year, but some are still hoping it will be extended retroactively. Likelihood of passage: 50-50.
«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
105 Comments
Pedro Rodriguez
November 12, 2012 at 8:08 pm

Fear mongering like this article written without any substantiation is dispicable. Returning taxes to 39% on the wealthiest among us is the right thing to do. All the self-serving whining by the 5% is a disgrace to the meaning of being a US citizen. Quit your bellyaching and pitch-in

Bossmom
November 12, 2012 at 7:32 pm

Obama a intellect???
You got to be joking. If he is he would be more than welling to show his college records and what ever else he has sealed.

edward c. stengel
November 12, 2012 at 7:11 pm

One thing that should stop for sure, no matter what else happens, is the 2% payroll tax credit. It never should have been allowed in the first place. It's under funding social security by over $100 billion per year. Social security is an insurance policy, not a payday loan company. What makes this so pitiful to begin with is that it's the democrats who wanted this, not the republicans. In particular, it was Obama's idea. It is shameful to see the leader of the party of FDR doing harm to the social security system,which is the crown jewel of the democratic party.

Julio C. Flores
November 12, 2012 at 7:10 pm

I am beginning to agree with whomever said..."War is a necessary evil"...and a Civil War may be the answer to stop the dictatorship. We are being fooled with good speeches and fake smiles. We have come to divisions everywhere...congress and country...and obama fails to lead both....he did say..like a dictator...if congress does not do it...I will" So many will refer to us, the concerned ones, as not knowing what we are talking about. The government that works to give its people everything the people want...can get to the very same government can give you less and less, or even take everything you have. Remember obama's statement.."you did not buildt it alone".

Stephen Preston
November 12, 2012 at 7:02 pm

Don't laugh to hard. In case you don't know, aside of what he wants for tax increases, our medicare goes up to $105.00 in a couple months, and up to $247.00 A MONTH in 2014 to fund people who don't pay taxes on Obamacare. With the cuts and raids, you better have some gold tucked under your mattress! No more funding I can see for what we paid into for 40+ years.

jdorfman
November 12, 2012 at 7:00 pm

I don't feel that a flat tax will work for everyone. If that were the case and the rate did not get adjusted to the individuals income, so many of us now hardly make enough to cover what we now have. Say the rate went up to a max of say 25-30%, those of us having paid taxes according to our income each year being say 12-15% will be paying twice as much as before and those making over 200-250k+ a year will be paying a lot less then they had been due to their income bracket and simply getting richer. In addition, with all the tax shelters they may have or off shore bank accounts not subject to taxation. It might work out if those in that bracket who own a good business will hire more workers at a higher pay scale since they will be saving money in income tax. More people back to work means more money spent on the economy issue in this country. A new upsurge of small industry in many rural areas would give folks living there an oppertunity to contribute to the economy instead of having to collect unemployment compensation and reducing polution by not having to run another vehicle on the road. In some cases, a car may not be needed to travel back and forth at al. With the new technology today and new understanding of industrial waste or polution coupled with the lowering of tax rates for business owners should allow them to also invest in methods to decrease any polution the company may produce in its day-day operations.
Limiting many tax loopholes to high income people such as multi-million dollar homes in several locations,6or more vehicles not needed for the business, and a family of 4-6 people in the main family home. I could go on with this but I'll stop now before I really get on a roll!

Bob
November 12, 2012 at 6:35 pm

Wonder how many people understand that the payroll tax cut is actually a 2% cut in what current employees in the work force are paying into the social security fund. Also could not help but laugh when I saw what the goverments idea of a small business tax cut.

Stephen Preston
November 12, 2012 at 6:22 pm

You too C !! But it is millions in Vacation. Michelle spent over $165,000. to take her spoiled little (&^&^%), being nice, to the pro choice kids awards. A one day event! The White house and our taxes are their personnel playground. On your dime. Excuse 16 trillion dollars

Stephen Preston
November 12, 2012 at 6:14 pm

Right on the money J.P. !!!!!

Ciaotebaldi
November 12, 2012 at 6:12 pm

This is the change most people voted for. Most Americans voted for a skin color, not a man who proved he deserved another term. We are getting repaid for "Stupid is as Stupid does"! If I was better off in 2012 than I was in 2008, I'd have voted for him. I'm not! As a retiree who saved his money and contributed to a 401 K, expecting to get a 4% return from the bank, He has failed me. Barney Frank reduced the value of my house by 30%, which further cut into my nest egg. The cost of Gasoline is up over $2 more than in 2008. My S.S. check is taxed and I'm told that, even though I put valuable dollars in, I', told it's an "Entitlement", a gift so to speak. When are you going to stop listening to lies and vote according to ability? I am sick that supposed "intellects" can't see before their eyes. What has Mr. Obama accomplished with a democratic congress?? How did he "earn" his job. If he were you, you'd have been fired 2 years ago. He takes thousands of dollars of vacations and laughs at you!