The Fiscal Cliff: What will happen to me if the Bush tax cuts expire?


If the Bush era tax cuts are allowed to expire (currently scheduled to expire at the end of 2012), virtually ALL taxpayers will be faced with a combination of higher tax rates on their income, dividends, and capital gains. Higher income earners will pay an additional 3.8% on their investment income and almost one percentage point higher on their Medicare rate as dictated by the Patient Protection and Affordable Care Act, affectionately known as “Obamacare.”

Here is how the tax rates break down:

2012 Dollars Pre-Bush Rates –In 2013– Current Rate Obama Plan Romney Plan
$388,350 + 36.6% 39.6% 35% 39.6% 28%
$217,450-$388,350 36% 36% 33% 36% 26.4%
$142,700-$217,450 31% 31% 28% 28% 22.4%
$70,700-$142,700 28% 28% 25% 25% 20%
$17,400-$70,700 15% 15% 15% 15% 12%
Up to $17,400 n/a n/a 10% 10% 8%
Top Dividend Rate 39.6% 43.4% 15% 43.5$ 15%
Top Cap Gains Rate 20% 23.8% 15% 30% 15%
Estate Tax Rate 55% 55% 35% 45% 0%
Estate Exemption $675,000 $1 Mil $5 Mil $3.5 Mil n/a

Note: Under Romney’s plan, couples with annual income below $200,000 will pay no taxes on capital gains and qualified dividends though he plans to offset the reduction in tax rates with unspecified limits on deductions.

From where I’m standing, most people are set to be shocked unless something changes with the tax law OR there’s s change of address at 1600 Pennsylvania Avenue. With the tepid “recovery” we’re experiencing, an increase in tax rates could be catastrophic.

What will happen to YOU if these tax rates increase?

Simply put, you’ll pay more in taxes and have less take home pay.

Tomorrow, we’ll examine 10 different strategies you can employ to help you make some decisions on handling the potential for increased taxes.

About the author

Ron has written 1085 articles on The Wisdom Journal.

The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a partner in a national building materials company.

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