Entries in Fiscal Cliff (22)


Tax Tip: What Has Changed Since the Fiscal Cliff?

Ingram Publishing/Thinkstock(NEW YORK) -- At the end of last year there was a huge debate over government spending and taxes. But when the smoke cleared, today's complex system was left largely unchanged.

"It did extend some tax breaks that expired at the end of 2011 but for most people 2012 is basically unchanged and that's true even for the more affluent tax payers," says Bob Meighan with the tax prep firm TurboTax.

For most people the big change came at the start of the 2013 tax season.

"For the last couple of years there's been a two percent point reduction on the social security tax that folks paid on their wages or that self employed people pay," says Eric Smith with the Internal Revenue Service.

But Smith adds that special break went away on Jan. 1, meaning most people are paying more taxes this year.

"The rate that you pay returns to 6.2 percent on social security tax plus 1.45 percent for most people on Medicare," he notes.

Most people are paying that amount now.

Copyright 2013 ABC News Radio


‘Fiscal Cliff’ Deal Also Helps Hollywood, Railroads, Rum Producers

iStockphoto/Thinkstock(NEW YORK) -- The “fiscal cliff” compromise has been heralded as a saving grace for middle class taxpayers, their families and the unemployed.

But buried in the fine print of the 150-page deal are also some lesser-known New Year’s gifts to some of Washington’s favorite industries.

Under the plan, the federal government would eat nearly $100 billion in forgone tax revenue over the next two years by extending special tax credits for select businesses that had been set to expire.

While the provisions themselves are not new, and are often extended as part of major bills, their inclusion amidst a tumultuous year-end debate over deficits and debt did raise a few eyebrows.

The nonpartisan Committee for a Responsible Federal Budget listed the so-called “tax extenders” as a “bad” part of the fiscal cliff deal because their cost is not offset, “setting a bad precedent for future extensions.”

The mix of tax perks covering the next year, but with budget implications for the next two years, includes everything from incentives for employers to hire veterans to incentives for employers to invest in mine safety.  But it also includes these:

  • $430 million for Hollywood through “special expensing rules” to encourage TV and film production in the United States.  Producers can expense up to $15 million of costs for their projects.
  • $331 million for railroads by allowing short-line and regional operators to claim a tax credit up to 50 percent of the cost to maintain tracks that they own or lease.
  • $222 million for Puerto Rico and the Virgin Islands through returned excise taxes collected by the federal government on rum produced in the islands and imported to the mainland.
  • $70 million for NASCAR by extending a “7-year cost recovery period for certain motorsports racing track facilities.”
  • $59 million for algae growers through tax credits to encourage production of “cellulosic biofuel” at up to $1.01 per gallon.
  • $4 million for electric motorcycle makers by expanding an existing green-energy tax credit for buyers of plug-in vehicles to include electric motorbikes.

Copyright 2013 ABC News Radio


Investors See Silver Lining in Budget Deal

Spencer Platt/Getty Images(NEW YORK) -- The major stock indexes surged on Wednesday after Congress agreed to a budget deal late Tuesday night, bringing an end -- for now -- to the frenzy over the nation's fiscal cliff.

"I think it symbolizes that the deal is better than feared," said David Bianco, a U.S. equity strategist for Deutsche Bank.

The Dow Jones Industrial Average increased 243 points, or 1.9 percent, to 13,347 at about 10:45 a.m. ET, while the S&P 500 rose 27 points, or 1.9 percent, to 1,453.  The tech-heavy NASDAQ composite was up more than 2.4 percent to 3,092.

Investors appeared to respond mostly positively after the House of Representatives approved by 257 to 167 a bipartisan Senate deal to preserve Bush-era tax cuts for all Americans making less than $400,000 a year while increasing taxes for those wealthier.

Taxpayers earning more than $2.7 million will pay an average of $443,910 more this year, Bloomberg News reported.

But the part of the deal that fueled investor sentiment the most on Wednesday was that the dividend tax rate increased to 23.8 percent.  Though the dividend tax rate was increased from the previous 15 percent, the rate is still lower than the 43.4 percent some had expected, Bianco said.

"We are pleasantly surprised with that outcome," he said.

In response, Bianco said Deutsche Bank raised its forecast of the S&P 500 index to 1,575 from 1,500.

"In a low interest rate environment, the dividend yield and expectations of strong dividend growth should bring investors back to the equity market," Bianco said.

Some tax credits, such as the R&D credit, will be extended through this year.

Despite the surge in the markets, the bill does not address the country's long-term debt problems or the looming budget cuts agreed to as part of a temporary deal on the debt ceiling last year.  The "sequester" budget cuts scheduled to go into effect with the New Year -- a $1.2 trillion hit to defense and domestic programs -- were postponed for two months.

Republican leaders vowed to continue to press for additional spending cuts.

"Now the focus turns to spending," said House Speaker John Boehner, R-Ohio, in a statement after the vote.  "The American people re-elected a Republican majority in the House, and we will use it in 2013 to hold the president accountable for the 'balanced' approach he promised, meaning significant spending cuts and reforms to the entitlement programs that are driving our country deeper and deeper into debt."

Copyright 2013 ABC News Radio


Markets Surge After Fiscal Cliff Deal

Hemera/Thinkstock(NEW YORK) -- Wall Street is poised to get a big bounce on Wednesday after the House passed the Senate’s fiscal cliff agreement.

U.S. stock futures shot up after the drama finally ended late Tuesday.  Economists had warned hundreds of billions of dollars in automatic tax hikes and spending cuts could have triggered a U.S. recession this year.

Overseas, several leading European averages are up 2 percent on Wednesday as a result of the news.  Australian and Hong Kong stock indexes closed overnight at their highest levels since June 2011.

The vote brings tax increases on high earners for the first time in 20 years.  Single taxpayers earning more than $400,000 and couples over $450,000 will see their top marginal tax rate go up.  The wealthiest Americans will also pay more on capital gains and dividends.

The fiscal cliff deal stops income tax hikes for more than 98 percent of taxpayers.

Copyright 2013 ABC News Radio


Tweets Liken ‘Fiscal Cliff’ to Y2K, Mayan Calendar

Hemera/Thinkstock(NEW YORK) -- Remember Dec. 31, 1999, when the Y2K bug caused airplanes and satellites to fall from the sky, physically crashing into financial centers that had already crashed figuratively after important banking computers caught fire, and how all elevators were stuck between floors everywhere?

Or when, earlier this month, the world actually ended along with the Mayan calendar?

Some people think the “fiscal cliff” is going to be a lot like that: a bunch of hype, and not much catastrophe.

At least one U.S. senator, Iowa Democrat Tom Harkin, is on record comparing the fiscal cliff to Y2K. So are a whole lot of people on Twitter, desensitized by repeated warnings of economic cataclysm.

A sampling of fiscal cliff/Y2K tweets proves that some of us can’t feel anything for this “cliff” anymore:

  • Anyone missing the Y2K hype of 1999. Prince really should have cashed in on a cliff song.
  • Going over cliff may be most anticlimactic event since Mayan end of the world day.
  • Is the Fiscal cliff on the Mayan calendar as well?
  • Is the Fiscal Cliff Y2K compliant?
  • I survived the Mayan apocalypse.. I can survive a fiscal cliff dive
  • Bracing for the fiscal cliff the same way I prepared for Y2K: lots of candles, batteries, cans of soup, backing everything up to floppy disk
  • The Fiscal Cliff is the new Y2K.
  • Fiscal Cliff is the Y2K of 2012 Mayan prophecies.
  • If the fiscal cliff is anything like Y2K, it's going to be a pretty uneventful night.
  • Honest to God, the Mayan apocalypse "jokes" didn't overstay their welcome as long as the fiscal cliff "jokes."
  • We made it thru #Mayan cliff that was building for 1000 years. The #FiscalCliff will be no biggie. #Chill
  • We went over so let's stop with the "cliff". Can somebody find a new word. Cliff is soooo Y2K

Copyright 2012 ABC News Radio


‘Fiscal Cliff’ Standoff Weighs on Stocks, 401(k)s

Mario Tama/Getty Images(NEW YORK) -- Investors don't like uncertainty, and Washington’s game of cat and mouse on the so-called "fiscal cliff" of tax hikes and spending cuts has erased hundreds of billions of dollars of wealth from Americans.

If a deal is not reached, the consequences for the economy will be severe, wiping out as many as 5 percentage points of Gross Domestic Product in the coming year, according to some estimates.  Though economists argue about the impact of the numbers -- the $1.2 trillion in spending cuts would happen over 10 years -- nearly all agree the combined effect would be recessionary.

The Dow Jones Industrial Average has lost 400 points since the “cliff” talks began in earnest in mid-December.  That wiped out nearly half the gains in the index for the year, which, as of mid-morning Monday, was up 5.9 percent for 2012.  It’s a blow to investors and 401(k) savers who, since 2008, have seen only about 2 percentage points added to their wealth with the stock market’s gyrations.

It’s easier to gauge the “fiscal cliff” effect on the financial markets, but what’s less apparent -- though equally significant -- is the impact on non-publicly traded companies, says Sageworks CEO Brian Hamilton.

“There are 27 million private companies out there, and they’re watching the cliff negotiations closely,” he told ABC News on Monday.  “This uncertainty is weighing heavily on business owners.  You can’t throw policy at them on the last day of the year and expect them to adapt and plan for their businesses."

“They’re uncertain and they should be; they need some time to prepare for what’s coming at them.  If it’s a great policy, that’s fantastic.  However, any policy is better than the uncertainty they’re facing right now,” Hamilton said.

Perhaps the most discouraging aspect of the “cliff” talks is that even under the rosiest scenario, any deal worked out to avoid it will do little to solve the nation’s budget and debt morass, built dollar by dollar in three decades by politicians in both parties.  The budget deficit has topped $1 trillion four years in a row -- a shortfall higher as a percentage of GDP than any year since World War II.

Meanwhile, the national debt has ballooned to more than $16 trillion.

No deal being contemplated would even bring the budget into balance until nearly the end of the decade, nor would it envision cutting the national debt by even a dollar.  Instead, the debt will continue to rise.  

President Obama needs authority to raise the debt ceiling or face drastic cutbacks, starting as soon as Monday.  Treasury Secretary Tim Geithner told Congress last week that the government would hit its $16.4 trillion borrowing limit on Dec. 31.

The government will be able to move money around between its accounts to stave off a crisis but only for a month or two.  It’s not clear then what would happen if the debt ceiling is not increased.

Bill Gross, at Pacific Investment Management Co., manager of the world’s biggest bond fund, tweeted on Monday that he expects stocks and bonds to return less than 5 percent in 2013 as high unemployment persists.

“There may be no miracle policy drugs this time around to provide the inevitable cures of prior decades,” Gross wrote in his December market commentary on Pimco’s website.  “These structural headwinds cannot just be wished away.”

Even if there’s a deal, the economy is in for headwinds next year.  A 2 percentage point jump in payroll taxes for Social Security will take place on Jan. 1, sucking about $2,000 from a worker earning $100,000 a year.  Higher taxes on the wealthy -- a given in any version of a budget deal -- will draw money out of the economy, cutting job creation.

Economists expect that even with a deal, GDP will rise at a 2 percent rate in 2013 -- not enough to make a dent in the jobless rate, which has remained near or above 8 percent since 2009.

Copyright 2012 ABC News Radio


Stocks Down While Legislators Discusses the Fiscal Cliff

Hemera/Thinkstock(NEW YORK) -- On the last trading day of the week, stocks dropped, as investors lose hope that Washington will meet a self imposed deadline for avoiding the fiscal cliff.

The Dow lost 158 points in a five day losing streak, the longest since July. The S&P fell 15 points. The Nasdaq dropped 25 points.

House Speaker John Boehner met with President Obama and other members of Congress on Friday.  ABC News was told President Obama made no new offers during the discussions.

Copyright 2012 ABC News Radio


Starbucks to Congress: ‘Come Together’

Starbucks Corporation(NEW YORK) -- Starbucks will use its words and coffee cups to send a message to Congress about working together on securing America’s future.

In an effort to prod the Democratic and Republican members to come together to create a responsible financial plan as the country approaches the looming fiscal cliff, Starbucks employees will write “Come Together” on every cup of coffee sold in its Washington, D.C., area stores.

“In the spirit of the Holiday season and the Starbucks tradition of bringing people together, we have a unique opportunity to unite and take action on an incredibly important topic.  As many of you know, our elected officials in Washington D.C. have been unable to come together and compromise to solve the tremendously important, time-sensitive issue to fix the national debt,” writes Starbucks CEO Howard Schultz in a blog entry posted on Wednesday.

Schultz continues, “Rather than be bystanders, we have an opportunity -- and I believe a responsibility -- to use our company’s scale for good by sending a respectful and optimistic message to our elected officials to come together and reach common ground on this important issue. ”

Last year, Schultz urged CEOs to halt campaign contributions until Congress and the president delivered a “fiscally disciplined long-term debt and deficit plan to the American people” and urged businesses to “accelerate job growth.”

Now, Schultz is sending a message that could ignite change.  The message that he hopes will make a difference will be written on Starbucks cups through Dec. 28.  

Congress and the president will be back in town on Thursday in a last-ditch effort to come up with a budget/deficit deal.

Copyright 2012 ABC News Radio


Will Fiscal Cliff Worries Cause Major Wall Street Sell Off?

iStockphoto/Thinkstock(NEW YORK) -- Fiscal cliff fears may lead to a major sell off Friday on Wall Street.

After the Republican revolt in the House on Thursday, House Speaker John Boehner was forced to abandon his plan to avert tax increases for most Americans. 

As a result, Asian stock markets were down sharply overnight.  European markets were also trading lower on Friday, while U.S. stock futures were in the red ahead of the opening bell.

Many business leaders warn the longer it takes to deal with taxes and spending, the greater the harm will be to the economy.

Coming into Friday's trading session, stocks are higher for the week.  The day before, the Dow rose 60 points to 13,312, while the Nasdaq gained six points and the S&P added eight.

Copyright 2012 ABC News Radio


Fiscal Cliff Debate May Delay Tax Refunds in 2013

iStockphoto/Thinkstock(NEW YORK) -- If you depend on an early tax refund to help pay for large holiday credit card bills you could be out of luck.

The last-minute debate over the fiscal cliff may delay tax refunds in the new year.  The IRS is likely to be very busy dealing with changes in the tax code.

"There's a high possibility that the tax filing season could be further delayed," says Kathy Pickering, executive director of The Tax Institute at H&R Block.  "We're recommending that people be aware of that."

"Either if you need to modify your holiday spending or make arrangements to pay bills in February that you would otherwise pay in January," she says.

Copyright 2012 ABC News Radio

ABC News Radio