Happy New Year, SUCKER!

The Fiscal Cliff package passed this week. Rhetoric aside, your payroll taxes and self-employment taxes will most likely increase by 2% of your income. This means that if your business makes $100,000 this year, you’re going to need to send an additional $2,000 to Washington that you didn’t have to send last year. If you have a salary (gross income) of $100,000, an additional 2%, or $2,000, will be deducted from your paycheck before you can spend or save it.  Happy new year!

It’s not so easy to gauge exactly how the new law benefits or hurts most taxpayers because tax law is insanely complex and intentionally obfuscated by political rhetoric. That said, the middle-class and budding entrepreneur class will probably pay more in taxes than they did last year (see previous paragraph). However, the tax increases could have been a whole lot more severe. The Alternative Minimum Tax (AMT) had threatened to slam most taxpayers with huge surprise tax bills this April. The new law indexes AMT for inflation – you probably don’t need to worry about it anymore. Furthermore, federal estate taxes, dividend taxes and capital gains taxes also increased. Count your blessings. These increases could have been more confiscatory.

I am puzzled how the government can cut projected revenues while postponing cuts in expenditures. Reasonable people, when faced with a drop in income, either find the money elsewhere or cut expenses. I don’t know how government defies this logic.

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

7 Responses to “Happy New Year, SUCKER!”

  1. Nice, simple and concise post Mark. Easy for me as someone the other side of the ocean to understand. Government and logic – two words that do not go together over here either.

    • Thanks for reading, Marty. I’m a student of history, and find it especially ironic that the US was founded on the basis of freedom from oppressive taxation. It was a tax-free zone, like the Cayman Islands. The British Stamp Tax was a critical issue leading up to the pivotal Boston Tea Party, and, eventually, the American Revolution.

      Even after the US was founded, its populace was ready to take to arms to fight taxation (for example the 1791 Whiskey Rebellion) And until the 16th amendment was ratified in 1913, income taxes were generally ruled as unconstitutional. Initially, income taxes were imposed only on corporations (for the right to do business with limited liability) and the very wealthiest Americans, at 2%.

      How things have changed.

  2. Reblogged this on Homepreneurs's Blog and commented:
    The Accountinator’s take on the Fiscal Cliff package

  3. Mark,

    One line sums up this post: “I don’t know how government defies this logic”

    As we all know, government and logic are an oxymoron in many cases…

  4. Greetings from California! I’m bored at work so I decided to check out your site on my iphone during lunch break. I enjoy the info you provide here and can’t
    wait to take a look when I get home. I’m surprised at how fast your blog loaded on my cell phone .. I’m not even using WIFI,
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  1. The Fiscal Cliff and AMT « Accountinator - January 4, 2013

    […] Update on fiscal cliff is here. […]

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