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Fiscal Cliff

CAPTIVATE ) IDEAS If the president and Congress fail to halt more than $600 billion in automatic tax increases and budget cuts planned to begin in 2013, the U.S. economy could be thrown back into recession. ÅFISCAL C/ BY TOM NICHOLS > THE REPUBLIC | AZCENTRAL.COM F How taxes will change and budget cuts will take effect TAP STEPS FOR DETAILS BUSH-ERA TAX CUTS EXPIRE Tax cuts signed by President George W. Bush in 2001 and 2003 expire at the end of the year. That means taxes will go up on nearly all Americans, raising hundreds of billions of dollars in new federal revenue, but costing the average family more than $2,000 a year. President Barack Obama favors increasing tax rates for families with annual incomes of more than $250,000. step If the Bush-era rates expire, income taxes will rise to 39.6 percent from 35 percent for the wealthiest Americans. For middle-class households earning just above $70,000, income-tax rates will rise to 28 percent from 25 percent. Capital-gains taxes will rise to 20 percent from 15 percent for nearly all taxpayers. Dividend-tax rates, currently at 15 percent, will be taxed as ordinary income, meaning most households will pay higher rates. For the wealthiest Americans, the dividend-tax rate will rise to the top income-tax bracket of 39.6 percent. 2 AUTOMATIC BUDGET CUTS step The Budget Control Act takes effect in January with automatic cuts of $55 billion in defense and $55 billion in domestic spending during the first year. Over 10 years, $1.2 trillion would be cut. SOCIAL SECURITY TAX ROLLBACK ENDS A temporary reduction in Social Security payroll taxes will expire at the end of the year. In 2011 and 2012, Congress and the president cut the share paid by workers from 6.2 percent to 4.2 percent. The result: A worker making $50,000 a year got $1,000 in extra pay. step IN JANUARY, ALTERNATIVE MINIMUM TAX KICKS IN, JOBLESS BENEFITS EXPIRE, HOMEOWNER HELP ENDS • More than 26 million households will be hit with the Alternative Minimum Tax, focusing mostly on earners with annual incomes of more than $75,000 and several children. The additional tax hit would average about $3,700 for each household. • Unemployment benefits for the long-term jobless will expire. About 2 million Americans would lose payments. step The Mortgage Forgiveness Debt Relief Act expires. The legislation protects homeowners who received principal reductions on loan modifications or who sold homes in short sales or bankruptcies from taxes. The Internal Revenue Service will classify the amount of debt canceled in a home-loan modification or home sale as ordinary taxable income. %24 LATEST NEWS: GỌP offer If the fiscal cliff takes effect The gross domestic product, or economic output in the United States, GDP Quarterly growth rates Negative economic growth and soaring unemployment are forecast, while the budget deficit will be steeply reduced if no progress is made in avoiding the fiscal cliff, according to the Congressional Budget Office. The negative economic impact is equal to about 4 percent of gross domestic product. 4 Q3 3 2.0% could contract TAP FOR SCENARIOS by 0.5 percent, according to the Congressional Budget Office. 2 1 1 -1 -2 -3 2 If an agreement is reached to avoid all -4 -5 automatic spending and tax changes, the GDP could rise by 1.7 percent next year. -6 '10 '11 '12 '13 60. U.S. FEDERAL BUDGET SURPLUSES AND DEFICITS 2012 UNEMPLOYMENT U.S. monthly rate deficit Without an $0.4 trillion agreement, the budget deficit would decline $1089 10 0.2 trillion Oct. more steeply, by nearly $700 billion, 79% -0.2 -0.4 according to the CBO. -0.6 -0.8 8. -1.0 -1.2 '10 '11 '12 '13 Bill Barack George W. Bush 60. -1.4 Clinton Obama -1.6 00. '02 '04 90. '08 '10 '12 '13 Without an agreement, unemployment could rise to 9.1 percent next year, according to the CBO. AP. SOURCES: FACTSET; U.S. CENSUS; BUREAU OF LABOR STATISTICS; DEPT. OF COMMERCE; CONGRESSIONAL BUDGET OFFICE. NOTE: FEDERAL BUDGET YEAR ENDED SEPT. 30. ILLUSTRATION & INFOGRAPHIC BY ANDREA HESER How we got to the brink SCROLL FOR MORE The president and C deadlocked on exter ceiling, upsetting wo markets. The United always paid creditors default. In a last-minu Congress passes and signs the Budget Cor the debt ceiling to $1 legislation includes r trillion in discretiona over 10 years. President Barack Obama and House Speaker John Boehner, R-Ohio, come close but eventually fail to reach a 10-year budget deal that includes more than $3 trillion in spending cuts and about $1 trillion in additional revenue. The "grand bargain" would have re- duced Medicare and Social Security spending, raised tax revenue and increased the U.S. debt ceiling. %24

Fiscal Cliff

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An interactive graphic on how taxes will change and budget cuts will take effect if the fiscal cliff does take place. Originally published in AZ magazine, an iPad weekly news magazine. Download for fr...

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