Fiscal Cliff and 2013 Tax Changes: Obamacare Taxes
November 29th, 2012
by Jesse Anderson, CFA
You can’t watch any news channel these days and not hear the term “Fiscal Cliff” mentioned within a few minutes. Although many view this event as catastrophic, I doubt they truly understand how their personal situation will be impacted by the Fiscal Cliff consequences. The Fiscal Cliff refers to the combination of spending cuts and tax increases in the Budget Control Act of 2011, the expiration of the Bush Tax cuts, and other changes set to take effect on January 1, 2013.
Many believe it is in the Republicans’ and Democrats’ best interest to pass a budget deal before year-end to avoid the law changes set to begin in 2013. While it is debatable whether the two parties will be able to meet somewhere in the middle to pass a deal, one law that is unlikely to change in the process is the “Obamacare Tax.”
On simply the Obamacare Tax portion of the looming Fiscal Cliff, only the wealthiest 5% income earners will feel the greatest pain. The two largest portions of the 20 new or higher taxes contained in Obamacare will only affect Americans with taxable incomes greater than $200,000 for single filers or households earning more than $250,000. To no surprise, most of the taxes impact only the highest income earners while avoiding a majority of Americans and the middle class.
The two taxes impacting the wealthiest Americans are a surtax on investment income and a hike in the Medicare Payroll Tax. Both will increase taxes by 3.8% on incomes over the thresholds mentioned above. The Congressional Budget Office estimates these taxes will generate over $200 billion in tax revenue.
While I won’t begin to discuss the merits of Obamacare or the fiscal and monetary changes necessary to improve our overall economic situation, I will make a recommendation. Before you begin to make financial decisions based off of speculation or hearsay, I strongly encourage you to take the time to do the research necessary to evaluate how your personal situation will be affected by law changes. It’s easy to let your emotions take over, but you’ll be better off if you sit back, see how the events unfold, and then base any changes you make on solid facts.
This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.
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