Taxes seem to be the “topic of discomfort” these days. If it’s not Romney’s now-infamous 47% comment about the number of Americans who don’t pay taxes, it’s the looming “fiscal cliff” that folks are talking about. Not only that, but tax season is quickly approaching, which is serving as the ideal backdrop. But there’s also a larger picture to frame the tax considerations against. It encompasses many things, including the way the American public see politics, their money and their trust – or lack of – in so few things these days. And make no mistake – it plays a big role, especially considering we go to the polls in a matter of weeks to determine who will be the next president.
While it seems like everything is in a holding pattern until that’s decided, there are actually a lot of things going on, albeit out of the spotlight, that will affect how much you and I pay come April 15th. Ultimately, it will effect every other aspect of our finances, including credit card interest, how much we pay for a loaf of bread and whether or not we’ll be able to refinance our mortgages. Here’s our take on how taxes are going to play a much larger role in our every day lives moving forward.
The fiscal cliff that has many concerned may ultimately be nothing at all to worry about. That said, we’re relying on a historically (as of late) Congress to ensure it doesn’t become the nightmare it has the potential to be. If Congress does not act before January 1, the Bush tax cuts will instantly disappear and the increases will be automatic, huge and for too many, absolutely devastating – and it’s likely going to affect the nation’s highest earners more, at least initially.
We always hear about retirement accounts that allow us to contribute while bypassing the taxes of those retirement payments with the goal of when we ultimately pay them years later, it will be a lower percentage. It’s what we all rely on, right? If the so-called fiscal cliff kicks in, we’re going to pay an additional 3.8% surtax on all of our retirement funds. Not only that, but if you’re in the highest tax bracket, which is 35%, come January 1, you’re going to automatically be paying 39.6%.
Many analysts are encouraging taxpayers to delay their charitable giving they usually do in December until early January. The difference of a few days will make a significant difference if Congress doesn’t act. Not only that, but that dental surgery that might come up the day after Christmas (isn’t that when they always seem to pop up?) If you can put it off a few days until after the first of January, that’s another deduction that will help offset those tax increases.
Especially if you’re on the edge of that upper income bracket, you may want to consider upping your contributions to your retirement. It can keep you in that safer lower bracket while also padding your retirement accounts rather nicely.
There’s another important thing to keep in mind, especially if you’re more of a “glass half empty” kind of person – and let’s face it, many of us have found our inner pessimist lately – we’re going into October. All eyes and attention are on the upcoming election in November. After that, the excitement from whomever is elected follows and is quickly overshadowed by the traditional American holidays of Thanksgiving and then Christmas. Not only that, but can you recall any time in recent history our elected officials have seen the month of December as anything but vacation time? Exactly. Odds are, we’re going to have a tough time convincing them to actually do their jobs and avert this crisis. We know it’s coming. They know it’s coming. They can prevent it. The only unanswered question is ‘will they?’
Next up is the health care law that’s slated to raise taxes for those earning higher incomes. The new year could bring problems for those with stocks and other assets that aren’t always a part of the middle income earners considerations. That 3.8% tax is kicking in for capital gains and dividends. It’s also going to affect those who earn rental income and married couple who earn a combined $250,000 or more a year ($200,000 for single earners). And don’t forget the tax increase for those in these higher tax brackets. That 0.9% increase kicks in January 1, too. The 15% rate hike for the nation’s high earners goes to 18.8% and if the Obama Administration goes back in, look for strong efforts to increase it to 20%. Romney has no plans to change it at this point. His big problem, however, are the comments that were caught without his knowledge this past summer.
Romney attended a Marc J. Leder fundraiser this past May, in which he was secretly videoed making comments that didn’t sit well with many.
There are 47% of the people who will vote for the president no matter what. All right, there are 47% who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement … And they will vote for this president no matter what … These are people who pay no income tax … My job is not to worry about those people. I’ll never convince them they should take personal responsibility and care for their lives.
There are so many dynamics at play and so many wild cards and scenarios that could unfold, it’s difficult to grasp what any of those changes might result in. The only certainty is consumer confidence is lower now when it comes to big banks, the media, politicians – all of it – than it was even following the infamous Watergate scandal that ended President Nixon’s time in office. That’s a powerful reality and one all of the bank presidents, politicians, journalists and anyone else with a social responsibility to treat consumer/taxpayer trust with the respect it deserves. Unfortunately, that’s not happening now and it hasn’t been a priority for several years. In a country that values its freedoms, those responsible for transparent policies are risking much more than their careers.
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