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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
Pat
November 14, 2012 at 9:21 am

We The People Of This Great America! America is a great place to live, if you want it to be to be poor. But you have to look over all it faults, dishonest, greedy,racial,debts and deficits. That our America, isn`t the land of the free. We so far in debts, thanks to all of the Presients all of our Senators in Congress. They take care of other parts of the world with our money. But don`t take care the America People, Look at the East Coast. They need help! The President don`t care and The Congress don`t care. But We The People do care. But we don`t have the money to give to them. We pay out our buys in tax`s for gas, groceries, we have to pay a lot of tax`s to live in this free America. We all need to get our House in Order now, for the coming of our Great Lord. He is watching America now and I bet he don`t like what is going on down here. If you don`t beleave ,I fill sorry for you! Because you will have to live down here.... God Bless America of it debts and deficits..

Carl Kelley
November 14, 2012 at 6:53 am

INCREASE OUR TAX RATES!! We're registered Republicans, tired of the insolvency the GOP heaped upon the nation since Reagan! We're also sickened by GOP failure to insist that Wars, National Defense, etc. be paid for on the current ledger! What ever became of the GOP that was the party of both Lincoln and of Eisenhower? We sold our collective soul by seeking the votes of un-Christian RACIAL BIOGOTS, greedy stock manipulators, and immoral gambling empire tycoons for a few pieces of silver... to pay for running hate-mongering ads of trash TV and ranting radio programs. They have manipulated the GOP for too many years.

frank
November 14, 2012 at 1:15 am

this was not caused by Obama for all of you who are putting him at blame. Who started all this was that wonderful George W. Bush.
Grow up! Do you actually think Mitt Romney could have done any better???????? If you are Educated you would know what is what.

J Harrell
November 13, 2012 at 10:22 pm

Its not Obama. Its congress! We would have this issue regardless of who was president. Blame your elected congressional representatives (Representatives and Senators). They did not do their jobs, instead they played games and wasted the time of the people that elected them..

Cindy Artale
November 13, 2012 at 10:01 pm

Simply put " This country cannot stand another 4 years of Obama." You will all see.

Barbara DeHaven
November 13, 2012 at 9:56 pm

These problems before us have been caused by our goverment, as usual want us to correct it. Us being the middle class and the poor.This is not acceptable. And our Heavenly Father also finds it unexceptable.We are a devouted and hard working people that Washington wants to just throw away like trash. We cannot let that happen.God has put everyone of here as equals and those in Washington do not have that right, they cannot over rule our Heavenly Father.If only we would all put our love and our trust in his hands how much better we could make things together.Let us all do that together and show Washington that their thinking and their doing is all wrong and a slap in the face of the Americans who depend on your judgement. All my Love to all of my fellow Americans. Sincerely, Mrs. Barbara DeHaven

Sue West
November 13, 2012 at 9:55 pm

I worked all of my adult life also and am still working at age 66.5. I plan to work until my body says I can no longer continue. I do not want my hard earned dollars to help the rich and people able to help themselves. I challenge each and every person to think of the people they love who use (not abuse) government programs and what it would mean if these programs no longer existed or existed in a way that would hurt those who cannot help themselves. One bible story talks about the rich young ruler who sought out Jesus to ask how he could get into heaven. Jesus advised him that he would not be able to do this by himself as it would require him to give all that he owned for those less fortunate. Just for thought.

Sharron
November 13, 2012 at 8:32 pm

Simply put today I saw a blog that said Republicans are rich and should do like the bible says and give to the poor....the ones that don't work they are the ones that speak the loudest..
I wonder if the won the lottery would they donate all of it to the poor or just keep it for themselves.....probably come up with some lame excuse ...just like one lady who won one million dollars but still kept het EBT card.It's there entitlement adjenda kicking in. If it suits them.I get so agravated when I here them justify what they want and what should have when they have not worked a day in there life,

Audrey
November 13, 2012 at 6:54 pm

I worked all my adult life. If I worked for a company that needed a turnaround and had not made any progress in four years, I would be looking for a new job. I would not be able to blame anyone for my lack of progress and certainly would not be handed another four years to continue to destroy the "company".

Roger Craig
November 13, 2012 at 6:14 pm

What sent this country into recession is the banks and the housing market that let a lot ride on dishonesty and people basically lying to get a loan. That was not Bush but dishonest Americans and greedy people that got you here today. And Today we have Obama and we need to push this country off the cliff into austerity and more sober and sane spending. I am tired of a government that does not care about the little man. Just banks and the rich....