The "Fiscal Cliff" is very real

[dan_s]

The is no sugar coating this. Our elected idiots, primarily due to piss poor leadership, have the United States economy heading over a cliff. What was so "Super" about that Super Committee? - Dan

What happens in 2013 (understanding the "fiscal cliff")?

The failure of the deficit reduction super committee to reach an agreement in November 2011 automatically triggered $1.2 trillion in broad-based spending cuts over a multiyear period beginning in 2013 (the official term for this is "automatic sequestration"). The automatic cuts will be split evenly between defense spending and nondefense spending. In addition, a number of significant tax breaks expire at the end of 2012. The expected economic impact of the combination of mandatory spending cuts and tax increases has been deemed by many the "fiscal cliff."

Significant tax provisions that expire at the end of 2012 include:

Lower federal income tax rates, part of the tax landscape for more than 10 years, return to pre-2001 levels beginning January 1, 2013. The top federal income tax rate will jump from 35% to 39.6%, and the maximum rate that applies to long-term capital gains will generally increase from 15% to 20%. Qualifying dividends, now taxed at lower long-term capital gain rates, will once again be taxed as ordinary income.
The temporary 2% reduction in the Social Security portion of the Federal Insurance Contributions Act (FICA) payroll tax, in place for the last two years, will no longer apply.
Current rules relating to the federal estate and gift tax expire (exemptions will substantially decrease, and the tax rates will substantially increase).
Lower alternative minimum tax (AMT) exemption amounts (the AMT-related provisions actually expired at the end of 2011) mean that there will be a dramatic increase in the number of individuals subject to AMT when they file their 2012 federal income tax returns in 2013.
Also beginning in 2013, two new taxes take effect. The hospital insurance (HI) portion of the payroll tax--commonly referred to as the Medicare portion--will increase by 0.9% for high-wage individuals, and a new 3.8% Medicare contribution tax will be imposed on some or all of the net investment income of high-income individuals.

CBO projections for 2013 and beyondThe CBO projects that as a result of currently scheduled policy changes, including the tax increases and spending reductions that take effect in 2013, the budget deficit will drop significantly. According to the CBO, however, this fiscal tightening will likely lead to a recession. The CBO expects growth in GDP to decline in 2013, with the unemployment rate rising to about 9% in the second half of calendar year 2013, and remaining above 8% through 2014.