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
Bill
November 13, 2012 at 1:37 pm

Jeremy, call BS all you want. I seldom would post to something like this as it is generally not worth it. Businesses and boards make their decisions quietly and then move on them. Seldom will you hear about it, it just happens behind the scenes. Particularly in private companies. It is not a marginal tax increase, the aggregate of what is proposed, some of which won't happen but enough will happen makes continuing forward just not worth it. Of course you don't want to believe it, I would not expect anything else as it is this type of thinking that has got us here. Just because you don't want to believe does not make it untrue. I have owned and been the head of companies for the last 20 years of my career and have had up to 800 employees at one time, I know somewhat about what I speak. Give it a few years, then let me know how it all worked out.

gds
November 13, 2012 at 10:59 am

The blindness of so much of the American population is stunning. Public edcation run by liberals for so many decades has created "sound bite" illiterates....incapable of researching a topic and coming to a logical conclusion. We are in far deeper trouble than the re-election of the left's "dear ruler" ....

Let us not even get in to the "takers" who have been financially supported by workers robbed by the force of law through income redistribution (Taxes)....committed by elected officials of BOTH partys.

----“The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money.”
― Alexis de Tocqueville

Jeremy Stein
November 13, 2012 at 10:51 am

Bill writes "I have calculated what this will do to my income and quite frankly it is not worth keeping my businesses open anymore."

I call B.S. How could a *marginal* increase on only the income above $200K require you to close your business? That makes no sense. This is the straw man argument Republicans have been making against tax increases for the rich. I would love to see the numbers and shown to be wrong.

Bill
November 12, 2012 at 9:27 pm

The BS of the argument to tax the rich is ignorant. Single filers @$200K and married @$250K are NOT rich, at best they are affluent upper middle class. I fall into this category and have calculated what this will mean to me. It means everything I own that is not associated with my business or primary residence will be sold so I can afford to pay the new taxes. I have calculated what this will do to my income and quite frankly it is not worth keeping my businesses open anymore. I am in my 60's, have worked long hard hours for 40 years and never stop thinking of my business and how to make it better. In the process I have made many peoples' lives better and yes, I have accumulated some money but enough is enough. I am beginning an orderly shut down of all of my business interests and in the process 223 people are going to lose their jobs. Keep arguing and lie to yourself this will not make a difference, but it will.

Sarge
November 12, 2012 at 8:50 pm

Any problems that the President currently has was not be cause of GW Bush, as he has had 4 years to set the groundwork for the next year.

So lets not hear anymore of "IT IS BUSHES FAULT"

Dexter Morgan
November 12, 2012 at 8:44 pm

Really Lloyd and Twiselton, you're still going to blame Bush for this mess. It will be interesting who BHO will blame when things still don't turn around in his 7th year. Funny stuff......

Ted Nugent’s Mind
November 12, 2012 at 8:33 pm

Julio, it will eventually come to total civil unrest, due to the fact this type of 'entitlement state' cannot be maintained. When the funds dry up, and the Govt. has sucked all it can out of the rich, what do they do? Lower employement, means lower tax revenue, which means a Govt. a lot more than 16 trillion in debt. Arm yourselves, because the Govt. won't be able to protect you and your family from what's coming.

Lloyd Nolan
November 12, 2012 at 8:26 pm

You are so right, A Twiselton. It is scarey to think that we came within three million votes of going back to the political party that put us into the recession. Those few billionares almost bought the election. And the people asked to give up the tax breaks can easily afford it.

LLoyd Nolan
November 12, 2012 at 8:12 pm

People seem to gorget that at issue is removing the tax cut for only the top 2% and the top 3 or so percent of small businesses (which are NOT small at all). Obama wants to keep the tax breaks for the working class since we are still in a recession.

A Twiselton
November 12, 2012 at 8:09 pm

Do all you people just blindly believe what you read and never investigate what really is? You sound as if you have no idea what is going on or has gone on, as in the Bush years that got us into a very ugly place, you voted for the man back then so now you are going to have to deal with whatever it takes to correct Rove, Chenny, Koch brothers, etc. By the way I worked in health care business, industry,it's sort of like the military industrial complex,for 40 yrs, and there is much room for reform, sort of like ACA or as you like to say Obama Care, and yes he does care.