Fiscal Cliff: How it could affect you
Updated On: Dec 19 2012 08:54:23 AM EST
Wednesday in Washington experts will discuss the impact on affordable housing. New research shows one in three Americans is cutting back now. What sacrifices will your family have to make? Own a small business in metro-Detroit? Hang on to your hat - because going over the fiscal cliff is going to impact you, your employees and your family. If you have a job - you will pay hundreds, if not thousands in higher taxes if your government takes you over the fiscal cliff.
If you make $60,000 - you'll pay an extra $2000 in taxes next year. That's boils down to not having an extra $160 a month. What will you cut out? Cable TV? Holding off on buying a new car? The fiscal cliff is days away - and if you're working - you and your family are going to feel the impact.
Fiscal Cliff and Social Security
For Social Security beneficiaries, the effect would barely be felt in a one-year period. In most years, chained CPI differs from the other inflation measure very little -- only by about 0.3 percentage points, according to the Social Security Administration's chief actuary.
This year, for example, that would shave about $4 a month off the cost of living increase for the average Social Security recipient. Currently slated for a $21-dollar-a-month increase, the average Social Security recipient would instead receive a boost of only $17 a month.
"That's the funny thing about this policy. If we enacted it, nobody would notice," Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, told CNN Radio's Lisa Desjardins.
But over time, the effect is compounded, and that has advocates for retirees up in arms.
Consider a person who retired at age 65 in 2000. If chained CPI had been used to calculate his annual cost of living adjustments, his monthly Social Security checks would total around $1,880 now, $106 less than under current law.
The longer a person lives, the larger the effect becomes. According to AARP, retirees lucky enough to live to 92 would lose a month's worth of benefits.
"It's a theory that may work when you're talking about buying chicken breasts instead of prime rib," AARP said in a statement. "But it's dubious for health care services, a very large expense for many who depend on Social Security, including older Americans and people with disabilities."
How will it affect your taxes?
Several elements of the tax code are indexed to inflation, including the income thresholds that define the tax brackets, the size of standard deductions and the size of tax-deductible contributions allowed in retirement accounts, such as 401(k) plans.
You're unlikely to notice a change in your taxes next year if chained CPI is used. But over a decade, the effect becomes slightly more pronounced, albeit still gradual.
Consider a typical household earning between $30,000 and $50,000. Ten years from now, a household with that same income would be paying about $125 more in federal taxes, according to calculations by the nonpartisan Tax Policy Center.