What Will the Possible Fiscal Cliff Plans Cost Your Clients?

A poor, single mother with two children under 13 and earning just $10,442 a year will pay more than a $1,000 more under a fiscal cliff scenario than under the Senate Democratic plan; she’ll pay $1,200 more in comparison to the current tax scenario. The Senate Republican plan would not change her current tax liability.

Moving across the socioeconomic spectrum, let’s look at an upper-middle-class retired couple, over 65 and with no dependents, earning $120,776, mostly in pension and Social Security income. Their tax liability will rise $6,836 a year if we go over the fiscal cliff (compared to their current liabilities). And, in comparison to the fiscal cliff, they’d be far better off under the Senate Republican or Democratic scenarios, both of which would reduce their tax liability to the tune of $6,662 exactly, perhaps an indication that politicians of both parties are not eager to mess with middle-class pensioners.

Financial advisors may have special reason to worry about the fiscal cliff. Their bread and butter client, an upper middle-class family with two children, earning $147,000 a year, would see their tax bill rise by $7,323 if we go over the fiscal cliff. That amount could be close to the savings they’re stashing in investment accounts. They’ll still take a hit under either the Senate Democrat or Republican plans, but under either scenario they’ll be $4,617 ahead in comparison to the fiscal cliff.

If that same family were far wealthier, earning $452,808 per year, than the Democratic plan would cost them $2,430 more in taxes than the Republican plan. And, back to that retired couple whose children have grown up, if they were far wealthier, with an income of, say, $750,837 per year, they’d be paying $21,000 more in taxes per year under the Senate Democratic plan than under the Senate Republican plan.

While the Tax Policy Center’s calculator has some utility in running numbers, Americans–for the next month at least–may be on their own in making political calculations. That’s because lawmakers are still engaged in their ritual shadow-boxing, leaving much doubt as to the shape of an ultimate tax regime.

On Thursday, members of both parties traded nearly identical accusations of bad faith, signifying the political stalemate could remain until, or possibly past, the new year.

Senator Charles Schumer, D-N.Y., blamed the impasse on the GOP. “You can’t start if (Republicans) aren’t putting anything on the table. They have put nothing, nothing of specifics on the table,” he said.

His Republican colleague Sen. Jeff Sessions of Alabama said it was the Democrats who have not put forth a plan. “Don’t the American people have a right to see these taxes and where they will fall? Shouldn’t the president of the United States, the only person who represents everybody in the country, lay out his plan, or must that remain a secret…? Will it just be revealed to us on the eve of Christmas or eve of the new calendar year?”