The Fiscal Cliff Deal is Essentially a Tax Hike on the Middle Class

The Fiscal Cliff Deal is Essentially a Tax Hike on the Middle Class

Most Americans are under the impression, erroneous as it may be, that Congress’ nick-of-time fiscal cliff deal basically stuck it to the “rich” (in this case, single individuals earning more than $400,000 a year or couples making more than $450,000) by increasing their top marginal rate to 36.9 percent and their dividends/capital gains rate to 20 percent.

However, practically everyone who gets a paycheck in the next few paydays will see their taxes increase by 2 percent (or see their take home pay decrease on the first $113,700) also as a result of that deal.

Personally, I think this should have been made the headlines for the very simple reason that it affects practically every wage earner in America. How many folks at your workplace (or in your neighborhood) make more than $400,000 a year? On the other hand, I bet you know folks who make $113,700 or less a year, right? That’s everyone! The fact of the matter is that your taxes also went up although you probably don’t consider yourself rich - and indeed you’re not, according to Congress’ and the President’s own definition.

This past Friday, a friend of mine who considers herself decidedly not rich told me that her biweekly paycheck was $55 less. So all of a sudden, she’s going to have to make do with almost $120 less every month, going forward. If I’m not mistaken, President Obama and politicians from both parties promised again and again that the middle class wouldn’t see a dime of tax increases, didn’t they? In fact, almost every pundit in the media predicted – wrongly – that this 2 percent tax increase wasn’t going to happen.

As I explain extensively in my book, 5Mistakes Your Financial Advisor Is Making, anyone who thinks that Congress is likely to tax only the rich to fix our unsustainable debt problem is, quite frankly, being naïve. Hopefully, you didn’t drink that Kool-Aid, did you?

You see, there just aren’t enough rich people to tax. Besides, under our current tax code, it’s possible for someone who made way more money to end up paying less income tax than someone who made a lot less in the same year. The reason is that it’s all about your taxable income and less about gross/total income. Congress knows all too well that the rich hire the best financial minds – like those here at LaserFG – to help them legally keep their taxes to the barest minimum. So in a nutshell, the middle class is the easiest tax revenue target.

In my next column, I will discuss what you should be doing to keep your retirement assets out of Congress’ reach. But in the meantime if you already haven’t done so, get yourself a copy of my book from Amazon or the iTunes store so that you can be in the know!
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