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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.
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105 Comments
Thomas Cook
November 13, 2012 at 6:04 pm

Obama adheres to the Sol Alinsky strategy, but this is a formula that was used by Woodrow Wilson who said (paraphrased)a crisis is needed to sidestep constitutional stumbling blocks and to illuminate the great unwashed regarding the leadership qualities of the manipulator.

Rick
November 13, 2012 at 6:02 pm

I would like to respond to Ed Olson's comment. Since it is still Bush's fault after Obama spent 700 Billion, Cash for clunkers, Failed green energy.......and over ONE Trillion per year budget, why don't we just make him king for life and let him fix all our problems. After all he is just doing what Ferdinand Emmanuel Edralin Marcos did in the Philippine's.
Marcos(September 11, 1917 – September 28, 1989) was President of the Philippines from 1965 to 1986. He was a lawyer, member of the Philippine House of Representatives (1949–1959) and a member of the Philippine Senate (1959–1965). He was Senate President from 1963–1965.

While in power he implemented wide-ranging programs of infrastructure development and economic reform. However, his administration was marred by massive corruption, political repression, and human rights violations.

In 1983, his government was accused of being involved in the assassination of his primary political opponent, Benigno Aquino, Jr. Public outrage over the assassination served as the catalyst for the People Power Revolution in February 1986 that led to his removal from power and eventual exile in Hawaii. It was later discovered that, during his 20 years in power, he and his wife Imelda Marcos had moved billions of dollars of embezzled public funds to accounts and investments in the United States, Switzerland, and other countries.

Dan
November 13, 2012 at 6:00 pm

Congress does not want to saddle our children and grandchildren with Obama's insane debts and deficits. He has no right to their future incomes. Obama has not done one thing to enhance the success of the middle class to the contrary. He always says people like me who earn over $250,000 should pay their fair share (I think he likes to brag). He doesn't have to run a business on what he makes like most who work countless hours to earn their keep from their businesses plus support their employees with competive pay and benefits. Obama's policies are counter productive which creates uncertainty and breeds fear to expand or hire.

Jim Braddock
November 13, 2012 at 5:36 pm

Ed Olson, what fairy tale land are you living in? Yes, there were deficits under Bush that totaled in the 2 - 5 billion range. Did you totally forget about 9/11, the 2001 recession and the effect it had on our economy. Under Obama deficits now register above a TRILLION annually but you seem to condone that and blame Bush's much smaller deficits. Take your head out of the sand and wake up! You would vote for Obama if the unemployment rate went up to 25%, and it's people like you who are the problem with this country. Ideally rules and to hell with the rest..

Vince Neuroth
November 13, 2012 at 5:33 pm

Can we find another modern day government, and stop living in the past........................

Ron Vieira
November 13, 2012 at 5:32 pm

Jack said it all. The Republicans in the House have let this Country down with hopes of winning this past election. They failed miserably and now it's time for them to start looking like Americans and join with the President in leading this country Forward.

Ed Olson
November 13, 2012 at 5:23 pm

If some people do not want to be believe that it is STILL G.W. BUSH's fault, then your minds are so narrow. I have read some of the comments here coming from a lot of business-minded people. They are discouraged and they have a right to be. As far as they are concerned, Obama has had 4 years to get the economic problems taken cared of. What do you think he is, MERLIN,the magician? Try & see through history, starting in 2001. G.W. Bush inherited a budget surplus of over $270 Billion dollars when he started his administration. Look at it this way, you business-minded people, what would you do if someone handed you $270 billion dollars to operate your business. Of course, you will expand your business and try to increase the company's budget revenues. Makes sense to me. However, in G.W. Bush's case, he did the opposite. He made a different kind of investments. Whatever investments he made, this country's economy went spiralling downwards. And he used all of his 8 years of administration to send this country into a rotten recession that we are now facing. Can any of you business-minded people correct this problem in just FOUR (4),YEAR? WITHOUT ANY CAPITAL TO START WITH? Of course not! President Obama is compassionately trying to do his best to help get this country back on the economic recovery. So, why don't we all give Obama a chance and support him all the way. He is only human just like the rest of us. Perhaps a great support from all of us may do this country of ours some good in the long run.

Jack
November 13, 2012 at 5:04 pm

Tell the right wing lunatics to stop blocking everything he proposes and maybe something will get done.
They took the obstructionist route to deny him another 4 years and it FAILED MISERABLY !

Linda
November 13, 2012 at 5:04 pm

What ha Obamma done these last 4 years but travel around on the poor peoples money along with Congress. Lets put a limit on the amount of time a President can serve to a one 6 year term and on Congress lets institute a lottery that they never know for sure when their term will end, each state gets number and every so often the wheel is spinned and guess what whoevers number comes up is up or re-elecction lets see then how they will take care of the people in their states and not let big business help them get elected. Isn't it about time this country told big business to step out of politics and let the common ordinary people elect who they want in Washington. Can't afford to live on my own with the price of food and no raises in Social Security. Between what it taken out for Medicare and then my supplemental medical insurance doesn't leave much to live on.. Think as a requirement for running for any political office is that the candidate must take a job paying average wages and the whole family has to live on this income for two years then lets see how Congress acts. IT is nice to help other countries but think we need to take care of our own country first. We don't have to worry about another country taking us over since we are killing ourselves from within.

Carole Ellis
November 13, 2012 at 4:41 pm

If He cared, A Twiselton, why hasn't he done anything this last 4 years. He has had 4 yrs to do something. I have had no raise since he has been in office, probably because I work for a small business owner and things are tight and getting scarier by the minute.I go home with less of my pay because I spend alot more on groceries and gas. So please if I have missed something he has done to make our lives and our country a better place to live please inform me.