What exactly is the fiscal cliff. It is a combination of tax breaks all set to expire at the same time, in 50 days.
About 50% of the tax breaks are what are often called Bush era tax cuts of 2001 and 2003 which were renewed by President Obama in 2009. Those are income tax breaks for all Americans. At issue is whether to allow the breaks for Americans making over $250,000 a year.
20% of the tax increase would come from the end of about 80 tax breaks, mostly for businesses.
20% of the taxes involve the expiration of a Social Security tax cut enacted in 2010, which is technically separate from some of these other issues but because it expires at the same time, it is being rolled into the other discussion.
Finally the remaining 10% of the tax increases would come mainly from the alternative minimum tax. It would hit 30 million Americans, up from 4 million now. The costly AMT was designed to prevent rich people from exploiting loopholes and deductions to avoid any income tax. But the AMT wasn't indexed for inflation, so it's increasingly threatened middle-income taxpayers.
And that is the cliff, allowing all these tax breaks to expire at the same time. What would be the end result.
That question is too complicated to answer in just one segment. Tonight, the Bush era tax cuts.
This is the largest number of tax breaks and where the biggest fight may emerge.
What happens if a deal doesn't get done on the Bush era tax cuts? According to the non-partisan Tax Policy Center, people in every tax bracket will pay more.
10% bracket becomes 15%
25% becomes 28%
28% becomes 31%
33% becomes 36%
35% becomes 39.6%
Capital gains tax increase from 15% to 20%.
Families that claim a child tax credit, right now, get a $1,000 dollar credit but that will drop to $500.
Estate tax rates will go up.
Dividend taxes will increase dramatically from 15% to 39.6%.
The payroll tax cut, that meant savings of $1000 in 2011 and 2012 for someone making $50,000 a year, will expire. If it expires, paychecks will shrink beginning in January.
President Obama says he is ready to sign an extension of all those tax breaks except for the breaks on income over $250,000 a year. House republicans are saying they are sticking with their pledge to not raise tax rates.
Find out more about what the fiscal cliff could mean to your personal taxes in our cheat sheet - https://docs.google.com/a/fox19.com/file/d/0B1WT4DlXFQbeRTIxNWx3X0hYRjg/edit
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