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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
Octavia Emanuel
November 17, 2012 at 10:13 am

The USA was founded on exclusion by the immigrants who came to the "New World", and was'nt meant to include anyone who was'nt of Anglo Saxon heritage.and congress would like to keep it that way. The proof was there at the RNC. Still a segregated party.

I admire My president for being humble to bigots like Donald Trump, and the bigots in congress who'd rather see our country fail that do what's right for ALL of America.
Sometimes I wonder why immigrants want to stay in America because America is only country where certain People think they are superior because of their skin color. There is no perfect race. No such animal.

Buddy
November 17, 2012 at 10:02 am

Hey Mike L.

Take a look in the mirror!

p.valentine
November 17, 2012 at 10:02 am

I am sick and tired of the people lumping Social Security(Medicare)and Welfare (Medicaid) in the bundle. Those who draw Social Security worked most of our life and paid Social Security. Those who draw welfare never worked and never will. They had rather stay home and have another baby therefore another check, than get out and look for A job. I know there are those who need help and we should help them, but they should have to payback welfare. Welfare should be A short term loan until these people can find A job. OH, by the way senior citizens on Social Security pay every month for MEDICARE.

Government should stop dipping into Social Security that was paid forward by working people (senior Citizens) for A group of people who never give up A FREE RIDE.

mike leahy
November 17, 2012 at 9:42 am

to the obamahater: The President is not the problem.....the problem is HATERS like you. Let me guess....you are also a BIGOT.

Tom Kirchgessner
November 17, 2012 at 9:32 am

Term limits whould do away with many of the abuses of the seniority system. Congressional focus on pork and other programs to buy votes could even disappear. We might not have to watch TV hearings in which the Congressman/Senator is embarassingly uninformed or able to hold a thought.

Tom Kirchgessner
November 17, 2012 at 9:26 am

Those who think Medicare cuts to doctors who take Medicare patients hurts the doctors does not understand what really happens. The experienced and capable doctors will and do refuse to take medicare patients. Who gets hurt? Its the patients not good doctors who have in the past accepted Medicare patients but who in the future will not.

Anne-Marie S
November 17, 2012 at 8:50 am

I agree with Joan W, why is it congress because a way of life. There should be term limits on people in congress. What happened to "For the people, by the people". With congress becoming a way of life, there is no chance for change!!!! Give them two terms and then they must be out. Let other people get in there and do for the people. No retirement either. Why should they get a retirement after 12 years. Nobody else does. This government is going to"hell in a hand basket" in a hurry!!!!!

Joan W
November 17, 2012 at 8:30 am

One more thing. There should not be pensions for congressmen and senators and no pay when they do not work.

Obamahater
November 17, 2012 at 8:27 am

I am a retiree and I didn't vote for Obama and I can't believe there are so many idiots who did. HOW COULD YOU REELECT HIM??? WHAT IS WRONG WITH YOU PEOPLE??? I am ashamed to live in this country now and if I could afford to leave, I would. I am totally disabled. I worked hard for 50 years and never missed a day of work. Despite that fact, I have never collected one cent of disability or assistance. There is always a reason why you aren't eligible. They take your money from you your entire life and then when you need help, there is none. Now, I'm losing my house and everything I spent my life working for. Thanks a lot to all of you idiots who put this moron in office.

Joan W
November 17, 2012 at 8:26 am

I agree with Tony and the idea they are going to increase taxes on the elderly and also raise taxes on estates is disgusting. Let them look in their own backyard and reduce Congress and Senate's income, take away all the perks that exist and have them live with the same laws that affect all of us. They might also look at the computer system that handles the SS payments. There is a lot of fraud going on out there that is costing millions. Noone should be able to change anything in the SS system without a power of attorney for that individual or the actual individual with identification.