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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
p
November 16, 2012 at 4:28 pm

The Presidents Policys are Destructive to the country!

In his last 4 years H E SKYROCKETED the countrys NATIONAL DEBT!

I Advise you to research it for yourself! If you used your

credit card to pay your bills on borrowed money to the extent

Obama has put the USA in , YOU WOULD SOON GO BOTTOMS UPSIDE DOWN!

Further , UNLESS Obama changes 180 degrees on his policys

directions this country ( with his GODLESS POILCYS ) will become

ONE NATION UNDER ( NOT ONE NATION UNDER GOD INDIVISIBLE, WITH

LIBERTY AND FREEDOM FOR ALL). EX. OBAMACARE UNCONSTITUTIONAL!

Paul H
November 15, 2012 at 1:35 pm

While I didn't vote for Bush, Jr., Romney, Obama or McCain (because all are puppet presidents and/or presidential candidates), this problem of huge deficits didn't start with President Obama.

I do not understand the lopsided thinking of most American people. Some of you are so eager to find a scapegoat (like Obama) when you know he is NOT in charge. He is just a black face on policies that he did not create or control. This fiscal cliff was created by the same ones who select the presidential candidates.

And that is part of the problem: Americans who aren't looking for solutions or truthful answers, but just for the next big, bad scapegoat to rage against. They say people get the kind of government they deserve. Whoever said it first was probably right.

Semi and fully Electric Hospital Beds For Sale
November 15, 2012 at 6:21 am

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Jim Nich
November 14, 2012 at 6:10 pm

Didn't take long for those retirees to regret that Obama vote did it ? Did you also notice the billions in additional cuts to medicare that have been proposed on top of the 500 billion needed to fund Obamacare.

Carl Reid
November 14, 2012 at 5:36 pm

Did you hear the President keep saying "This year". Sure he will make it look like the middleclass is not getting a tax hike this year, but wait until next year and Obamacare will even be more enforce!

Cheryl
November 14, 2012 at 5:21 pm

Of course they're going to raise the middle class taxes because God forbid they tax the rich including the House & the Senate. We are barely getting by; my husband and I both work hard; and yet we don't have much to show for it. My health insurance was just raised to $500 a month. A new car is cheaper then my health insurance. Not only that the copays make that amount even higher. Maybe I should just quit my job and go on state Medicaid. Oh wait, they will say our income is too high. Personally I'm sick of this "great" country. Moving to Cuba! At least the healthcare in Cuba is free.

Nick Nelson
November 14, 2012 at 5:15 pm

I am retired and planned on periodic raises in taxes so I say go ahead and raise them accross the board . They say hind sight is 20/20 well in my case I guess foresight was too. I dont plan on ever getting a penny out of soc. security but if I do then great , but in the mean time I will survive and live very comfortablely because I didn't waste money on drinking and such ,only missed seven workdays in 33yrs worked all OT asked of me . I worked with a broken ankle,three broken ribs , several broken toes and fingers ,three ruptured discs , broken nose fractured cheek,broken wrist and more . When I had a heart attack at 37 I missed five workdays , so devote yourself and you also can retire at 55 yrs old

shirlgirl13
November 14, 2012 at 5:05 pm

see retirees, some os us tried to tell you NOT TO VOTE for Obama again....But , NO, you wouldn't listen. Don't complain about all the things that will be happening in the future. It's the Bush syndrome all over again.

Jerry
November 14, 2012 at 4:54 pm

Emperor Bully - Michigan's Govenor - and his legislative minions now take $133.00/month out of my pension forthe NEW state tax. if my pension gets raped anymore, my only out will be bankrupcy.

Tony Brignole
November 14, 2012 at 9:29 am

So... what have we learned in 2,065 years?

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance." Cicero - 55 BC