Tuesday, December 4, 2012

Your Very Own Fiscal Cliff Tax Calculator

Courtesy of the Tax Foundation, here's the link to a pretty cool little calculator that will help you assess the impact of the coming "fiscal cliff" tax changes to your federal tax burden:

This calculator looks at three scenarios:

1.) The expiration of all Bush and Obama tax cuts.

2.) The GOP plan to extend the Bush-era tax cuts.

3.) President Obama's plan to partially extend the cuts for families making under $250,000 per year and singles making under $200,000.

I used the calculator to do a quick calculation for a family with 2 children under 17 years of age with total income of $80,000 annually ($45,000 plus $35,000) and here are the results:

Net income taxes (excluding payroll taxes) will range from $7,138 for scenario 1 and $4,935 for scenarios 2 and 3.  Total tax liability and effective total federal tax rates (in brackets) will be $13,258 (17 percent) for scenario 1, $11,055 (14 percent) for scenario 2 and $9,455 (12 percent) for scenario 3.

If Congress allows the tax cuts to expire, this fake family of mine will pay $2,203 more in taxes, a drop in take-home income of 3 percent.

The fiscal cliff is expected to affect typical families in each state differently.  On top of the expiry of the Bush and Obama tax cuts, the Alternative Minimum Tax could cause a problem for many Americans.    If, for example, the AMT is not "patched" for the current year, the exemption level would rise to what it was 12 years ago and credits like the Child Tax Credit would not be allowed, pushing up taxes owing for millions of American families.

Here is a chart showing what could happen to the taxation level for a median four person family in the top ten states with the highest tax increases:

Here's what happens in the "least affected" ten states:

It certainly looks like Congress has its "work" cut out for it over the next four weeks, doesn't it?

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