WHAT IS THE FISCAL CLIFF?
The centerpiece of what the media has dubbed the Fiscal Cliff is the expiration of the Bush-era Tax cuts, but it also includes considerable spending decreases established during 2011’s debt ceiling debate. The overall potential negative impact to the economy is estimated at 6.9% of GDP.
The key components of the Fiscal Cliff include:
- Income Tax Increases -- See changes to tax brackets, but this also includes an increase in long-term capital gains rates to 20% & taxation of dividends at ordinary income tax rates.
- Medicare Sur-tax on Investment Income -- Addition of a 3.8% tax on investment income for higher income earners.
- $1.2 Trillion in Spending Cuts over the next 9 years -- Two primary areas affected are defense & discretionary spending.
- Estate Tax Exemption Decreased to $1 Million -- Assets in an estate left to a non-spouse that value over $1MM will be taxed at 55% rate.
- Expiration of Various Tax Credits --Earned Income credit & child tax credit are eliminated & reduced respectively. Other credits also affected.
- Will you Need to Earn More? (i.e., Higher Taxes Increase your Net Earnings Demand You need to earn more to make the same ends meet)
- Do you Own Individual Holdings? (i.e., highly appreciated stock or other securities)
- Do you Earn more than $200k per Year? (Medicare surtax could impact investment growth)
- Are your Investments Positioned for Tax Efficiency?
- Does your Estate & Legacy Plan need an Overhaul?
