Category Archives: examples of effects by income level

Taxes By Income If We Go Off the Cliff

 
Who will be affected if a budget deal is not reached and how? The Wall Street Journal published some interesting data in answer to this question on Wednesday, November 21, 2012 in its print edition. Of course the WSJ skews conservative Republican, but they also are our financial race track sheet for stocks, bonds, and commodities, so, hopefully, we can trust them to give numeric data that is not too skewed.

In this chart WSJ shows what % of tax increases, and therefore of the fiscal burden, would affect which group of American tax payers: 
 
 

They also give us some concrete examples:

First:  A higher-income working couple  (if Bush tax cuts disappear and if AMT relief goes away and investments get hit by higher rates in dividends and capital gains)

Income Example: $350,000

Federal tax change in dollars: $13,847, 20.3% tax change, 29% tax rate, 4.9 points up

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Second:  A Single Unemployed person (will have some of the largest tax increases with loss of benefits for working poor being a big factor)

Income Example: $10,000

Federal tax change in dollars: $159, 55.5% tax change, 8.4% tax rate, 3.0 points up

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Third:  Lower income working couple

Income Example: $25,000

Federal tax change in dollars: $1,423 (previously this group got a $15 refund), 5.5% tax rate, 5.6 points up

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Fourth:  Higher Income Professional (will lose protection from Alternative Minimum Tax)

Income Example: $150,000

Federal tax change in dollars: $6,662, 24.5% tax change, 24.5 tax rate, 5.0 points up

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Fifth:  College Student (will lose education breaks, payroll tax holiday)

Income Example: $15,000

Federal tax change in dollars: $308, 37.9% tax change, 7.5% tax rate, 2 points up

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Sixth:  Retiree Household (will lose Bush-era tax rates)

Income Example: $35,000

Federal tax change in dollars: $540, 42.4% tax change, 5.1% tax rate, 1.5 points up

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Seventh:  Very High Income Household (their federal tax bill would rise, yet share of overall federal tax would go down because the impact of the fiscal cliff on lower earners would be so great)

Income Example: $1 million or more

Federal tax change in dollars: $254,637, 24.2% tax change, 39.7% tax rate, 7.7 points up

 

You will have to judge for yourself whether, based on this information, you will be able to survive if you personally are taken over the fiscal cliff.