Fiscal cliff calculator shows how plunge impacts taxes
I've come across an excellent way to see how we'll make out as taxpayers in 2013.
It's a new fiscal cliff calculator from the Tax Policy Center that paints a picture of what our taxes might look like depending on what, if any agreement, Congress and President Obama reach.
The TPC is a joint venture of the Urban Institute and Brookings Institution — two nonpartisan policy-research behemoths — which provides independent analyses of current and emerging tax policy issues, so I trust their calculations much more than I trust my own.
It's different from the fiscal cliff interactive chart created by Arizona-based Symmetry Software that I wrote about a couple of weeks back, which shows us what the fiscal cliff does to our paychecks.
This one compares four different ways Congress could go and lets you tailor the outcome to your situation.
If you're still not sure what the cliff is, don't worry, you're not alone.
It's a dizzying combination of big spending cuts and tax increases that are scheduled to take effect beginning Jan. 1.
If Congress and President Obama don't come up with a better plan to reduce the deficit, we could end up shelling out a lot more in taxes.
The calculator examines four possible outcomes.
Congress and Obama could:
- Kick the can. They would extend current law with an alternative minimum tax patch, which means we'd be paying exactly what we are this year in 2013.
- Let us tumble over the cliff. They would allow spending cuts and tax increases to take place.
- Go with the Senate Democratic plan. This would extend Bush-era tax cuts for a year for everyone — except for the top 2% of earners — and extend the credits originally enacted by Obama in 2009 but allow the temporary payroll tax cut to expire.
- Go with the Senate Republican plan. This would extend Bush-era tax cuts for everyone, but it would allow the 2009 credits and payroll tax cuts to expire.
For a more in-depth explanation, check out our story on flirting with the fiscal cliff: 4 possible outcomes.
Because every taxpayer is different, TPC has come up with six separate sample taxpayers to serve as starting points, from a single individual with no children to a married family with two children who are under 13.
While you can customize the calculator to your family and financial situation, the sample taxpayers are the easiest way to make a quick comparison.
For example, let's choose a middle-income married family with two children under 13 years old ($75,240) and compare today's tax burden with the 2013 law as it stands.
After we customize income information, deductions and expenses, the calculator shows this family has an adjusted gross income — that's all earnings minus deductions — of $69,800.
But unless there's a change in Washington, next year this family would have a total tax liability of $14,819, or $3,289 more than they are paying now.
In contrast, a single taxpayer with a middle income level ($20,023) will have $802 in extra tax liability.
For both of our fictional taxpayers, that's a major hit.
Of course, the results from the calculator are just estimates, and TPC makes sure to point out that the calculator is not a preparation tool.
But it's still a good way to see how a change in tax policy will hit home.
You can find the calculator here: http://calculator.taxpolicycenter.org/