You spent five (or more) years studying to be an accountant, passed the hardest professional licensure exam that exists, and people expect you to know some shit about taxes. They don't care that you're "an auditor" because they don't know what that means.
Now when you go to parties, somebody will be like, "Hey, Mark, you're a CPA. What's the deal with this fiscal cliff?" And then you're like, "It's gonna be a bitch. Hey, where's Trevor?" because if you can create false concern for Trevor, people will never find out that you have no damn clue.
So here's the crap that, as a CPA, people expect you to know.
What is the fiscal cliff?
On January 2, 2013, taxes will go up and government spending will go down.
Bad luck, short-sightedness, and a game of chicken.
What do you mean "bad luck"?
By "bad luck," I mean "luck that was not good." Legislation was enacted in 2001 and again in 2003 that cut taxes for pretty much everybody. But this legislation included sunset provisions, meaning that the tax cuts would only be in effect for so long. Most of the tax cuts were scheduled to expire in 2010. The bad luck was the timing. Politicians don't want to be blamed for allowing taxes to go way up during a ridiculously anemic economic recovery.1
How did short-sightedness play into this?
The tax cuts were supposed to end two years ago, but instead of making long-term policy decisions to either let them expire or make them permanent or some other third thing, they were extended temporarily and are now set to expire at the end of this year. Along with this, a temporary payroll tax cut, reducing the social security tax by 2 percent, was enacted in 2010, extended through 2011, and is also set to expire at the end of 2012.
Tell me about this game of chicken.
Republicans and Democrats hate each other. About a year ago, congress established the bipartisan "super committee" to develop a plan to reduce the deficit by $1.2 trillion (or more) over the next ten years. If the super committee failed, $1.2 trillion in automatic spending cuts (called "sequestration") will come crashing down. The automatic spending cuts were designed to spank both Democrats and Republicans' asses equally. The only way to avoid the automatic spending cuts was for one or both parties to compromise. So Democrats were like, "If you don't compromise, you won't be able to spend money on your precious DOD killing machines." And Republicans were like, "If you don't compromise, you won't be able to spend money on abortions and gay stuff." Nobody compromised. Super Committee failed. Sequestration is inevitable (unless they decide it's not).
So what programs are gonna get cut?
That's a damn good question. After researching this for literally an hour2, I got the feeling nobody really knows. Some of the information I found seemed to contradict other information. All I could decipher was the following:
- Defense gets cut by like $500 billion over the next ten years
- Education funding loses $4.1 billion in 2013 alone (a 9.1% decrease in federal funding)
- Only $25 billion of the total $1.2 trillion in cuts hit in 2013
- Farm support programs take it in the poop chute
If anyone claims they know anything beyond these four points about the spending cuts, tell them they're full of shit, and attack their sources and their character.
What taxes are going to go up? By how much?
- Income tax rates will bounce back to their 2001 levels. The lowest bracket will jump from 10% up to 15%. The highest bracket will jump from 35% up to 39.6%. Everyone should expect about a 3 percentage point increase.
- Employee-paid FICA (social security), will go back up to 6.2 percent. It's been at 4.2 percent for the past two years. It'll feel like the government's giving you a big "FICA you!"
- Capital gains rates will bounce up, too. For the vast majority of taxpayers, capital gains tax rates will increase from 15% to 20%. If you make less than $8,700, capital gains rates will go from 0% to 15%, so homeless people should liquidate their appreciated assets immediately.
- The child tax credit is $1,000 per kid in 2012, but it will only be $500 per kid in 2013. The child tax credit is one way many taxpayers are able to write off their "gambling losses."
- The standard deduction for married couples (married filing jointly) will go down, so stop dragging your feet and get that divorce, you know, for tax purposes.
- Right now qualified dividends are taxed at capital gains rates (maximum 15%). After the fiscal cliff they'll be taxed at ordinary income tax rates (maximum 39.6%). Taxpayers are pissed because most of them don't get any dividends.
- The child and dependent care credit will go down by as much as $1,200 depending on your situation.
- People who die in 2012 will get hit with a 35% estate tax on net worth in excess of $5.12 million. People who die in 2013 will get hit with a 55% estate tax on net worth in excess of $1 million. Because of this, financial planners are getting swamped with estate tax questions like, "Will you unplug that cord for me?" and, "Please step on this oxygen tube."
- There's more, but no one would really expect you to know it.
What can we do about it?
Go to parties with complete disregard and indifference for Trevor's welfare.
1 But think it through. There's never a politically advantageous time to raise taxes. Inserting a sunset provision into a tax cut is like setting a timer at a cocaine party, and telling everybody that after the timer goes off, no more cocaine ... unless they decide as a group that they want more cocaine. (I acknowledge that my use of the phrase "cocaine party" implies that I'm a narc.)
2 Not a typo.