Our lawmakers might hurl us off financial cliff
Our lawmakers might hurl us off financial cliff
Have you ever been thrown off a building? Probably not, but I can tell you from experience, it’s not pretty. Last time it happened to me, I was three stories up, investigating the scene of a crime on a private gumshoe-for-hiretype case. The recently tarred rooftop of the Chelsea Inn was slick with summer rain, hot and steaming with it. The cloud cover was just enough to calm the bustling city below to a few honking horns and an unhappy pedestrian or two trudging God knows where on a Sunday afternoon.
I peeked out over the ledge more than once, and the funny thing is that you never quite know what you’re looking for until you’ve found it. Well, this time, it found me: A hot palm smacked against my back, a heavy shoulder thrown in for good measure, and soon you’re catching the wind in your jacket and spinning around in the air.
And we all fall down
This falling feeling is one we might do well to get used to. As a nation eyeing the expiration of so many tax laws at the end of this year, this legislature is about to sling us all off of a high and dangerous place: the fiscal cliff.
Since 2001, the highest federal income tax rate has been 35 percent, but that will jump on Jan. 1 to 39.6 percent. While a 4.6-percentage- point hike of the highest rate might not make you feel like your feet are slipping off the edge of the roof, that’s not the only change coming.
The highest long-term capital gains rate, the tax rate for money earned on an investment (and some other assets) held longer than a year and then sold, has been 15 percent for the last 10 years. That rate increases too, up to 20 percent. Do you feel the stale city breeze, dangerous on your face, the crushing sound of taxis and their brakes squealing below?
Qualifying dividends, to which long-term capital gains rates have applied for years, will go back to being taxed at your ordinary income tax rate. In a worst-case scenario, this could mean a jump from 15 percent to as high as 39.6 percent on dividends from your publicly traded stock or other holdings.
Don’t kid yourself; you are falling, too
Think these tax hikes may not affect you?
If you have any mutual funds inside accounts that aren’t IRA or 401(k) or annuity-type accounts (read: tax-deferred), then the long-term capital gains rate and the qualifying dividend rates could hurt.
Maybe they won’t do the kind of mortal damage a sidewalk’s concrete does on seersucker and skin, but even absent the blood, there will be pain, figurative or otherwise.
If you have earned income from a job, then you’re about to lose pay due to the expiration of the 2 percent reduction of the Social Security portion of the Federal Insurance Contributions Act payroll tax. And if your job puts you among the higher wage-earners, you could be looking at an increase of 0.9 percent in the Medicare portion of your payroll tax as well as a new 3.8 percent Medicare contribution tax on some of your net investment income. If you don’t have earned income from a job, you aren’t alone. In Pennsylvania in August, the unemployment rate was 8.1 percent, which might spell disaster if that rate doesn’t substantially change by 2013, when all of these tax changes take effect, as they could encourage deeper unemployment.
The end of the fall
Not unlike my unfortunate incident, it’s not exactly the fall that gets you, but rather the impact. The rate changes themselves aren’t what all the talking heads on your television are frothing about, but instead it’s the impact those changes could have by gumming up the machinery of our global economy.
To fully understand the gravity of the situation, it’s important to remember that Pennsylvania saw its unemployment rate peak in March 1983 at 12.9 percent.
Well, plenty of economists see that as a distinct possibility in the face of so many headwinds to our economic outlook.
As a matter of course, you should know that the worst parts of the city are overrun by police, but you never can quite tell which ones are crooked. I have my theories about who gave me the shove, and I’ve lived to explore the possibilities, but for our purposes here, you should know that I’d consider the use of power by some politicians to have a similarly negative impact.
Absent any legislative changes, in an election year (not that you need reminded), our nation’s politicians might be the heavy hand in our back throwing us headlong into our next financial crisis. Maybe this doesn’t mean a thing to us in the long term, but the possibility that it does is a frightening one.
One thing I can tell you that I’ve learned from my own experience is that once you’re in midair, you’ve simply got to resign yourself to the fall and do it with grace. Still, nothing says you have to inch so damn close to the edge.
The next time I see you, you’ll be wiser for the wear, I’m sure, and I certainly hope that I am too, when we go back Into the Noir.