The Fiscal Cliff 411

by Stephanie Berenbaum – January 2nd, 2013

What Does It Mean for the Middle Class?

Wow, could 2013 have gotten off to a more dramatic start?!  At way past the 11th hour, news finally broke last night that Congress came to an agreement regarding the seemingly ever looming Fiscal Cliff  (aka-FC).  So, what’s the verdict?  And how exactly will the everything impact the proverbial (and ever hard to define) “Middle Class?”

Redefining “Rich”

When President Obama was campaigning and talking tax increases for the rich, “rich” was defined as couples making more than $250,000 and individuals making more than $200,000 per year.  But what came out of yesterday’s FC agreement was a $200,000 change in that definition!  Meaning now… 2013 taxes will not increase for you unless your household makes $450,000, or if  you individually make over $400,000 per year.

As we know, whether you view yourself as rich, wealthy or middle class, it’s all relative to where you live.  Most families we know in major metro areas like New York City or Los Aangeles – with incomes of $250,000 – would absolutely describe themselves as middle or upper middle class.  While this might seem laughable in the vast majority of the country, if you are among this middle class subset, you did come out a winner last night!


As we’ve written about here on Fab & Fru, the Alternative Minimum Tax (AMT) has been a huge burden to the middle class.  Originally conceived in the 1960s, it somehow has traveled through time without ever being indexed to inflation – until now.  The FC agreement finally addressed permanently indexing the AMT to inflation – meaning more middle class families will be spared this unjust tax that was only created to make sure the very wealthy were paying their fair share.

Payroll Tax Increase

Hope you weren’t getting too excited about all the FC “victories.”  The reason you may be seeing a lot of headlines screaming about how your paycheck is going down, in spite of the Fiscal Cliff agreement, is because payroll taxes are going UP – or should we say back up to previous levels.

We weren’t exactly up on the history of payroll taxes either, but here’s the scoop: in 2011 the payroll tax rate was decreased from 6.2% to 4.2% as an anti-recessionary measure.  That rate cut also expired on the  December 31st – meaning that the tax rate has returned to 6.2%.  This means the vast majority of Americans will be seeing – you guessed it – less money in their paychecks.  While this subject was not an official part of the Fiscal Cliff negotiations, it’s end of the year expiration date, did put a damper on other middle class victories.

Here’s to a More Informed Financial New Year!

If there was ever a time to start following the financial news more closely – it is right now.  Though the Fiscal Cliff may have just been averted, guess what else happened on Dec 31st?  Yes – the USA hit the Debt Ceiling – and the fallout from that sad milestone is next up on the President’s already very full plate… Stay tuned!

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2 Responses to “The Fiscal Cliff 411”

  1. louie says:

    And not one mention of 10cents worth of spending cuts. Unbelievable. Watch out for Cap. gains increases and did we forget about the hidden sales tax on your home, buried into the great Health Care mandate? More taxes and no spending cuts. Where’s it all going? Oh, the gov’t just was blessed by our president signing a pay increase for all. When was the last time you got one? We voted the Genie out of the Bottle. Be careful what you wish for.

Any Thoughts?