The tax bite of the "fiscal cliff"

To contact us Click HERE

Credit: Wonkbook
(click through to see whole infographic)

So a reader challenged me to address the fiscal cliff and its effects on chemists. I've decided to address it in two portions. The "fiscal cliff" [or (as the Washington Post's Ezra Klein more descriptively (and accurately?) refers to it) "the austerity crisis"] is a package of tax cuts that are ending and federal spending cuts that might happen. Naturally, those in federally-funded universities, grant-related positions and the like will suffer effects from it; I will address it tomorrow. But everyone pays taxes, so everyone will be affected by this.

I am really not particularly interested in the elephant-versus-donkey part of assigning blame, but I do want to talk about the actual practical effects of what were to happen if all of the intended tax increases were to be imposed.

To the right is a portion of an infographic from the Tax Policy Center** and Washington Post that predicts that:

• For 2nd lowest-income quartile households (20k-39.7k), the average increase would be $1,231.
• For middle income quartile households (39.7k to 64.5k), the average increase would be $1,984.
• For the 2nd-highest income quartile (64.5k to 108k), the average increase would be $3,540. 

These are not insignificant increases -- I estimate that, for my household, I suspect it would be somewhere around $300 a month, which would definitely affect our consumption. I'll throw in the numbers for the non-1% households of the top quartile (e.g. a double Big Pharma household?): 

• For the top 80%-90% of households (bounded by 108k to 143.4k), the average tax increase would be $6,162. 
• For the top 90-95% of households (bounded by 143.4k to 204.3k), the average tax increase would be $7,830. 
• For the top 95-99% of households (bounded by 204.3k to 506.2k), the average tax increase would be $14,085

I think it's safe to assume that these tax increases (or, actually, returns to Clinton-era income tax rates, and Bush-era payroll tax rates) will be unlikely to happen for the bottom 98% of households, so in other words, most everyone. That said, it appears to me entirely possible that said tax increases will actually happen for a month or two, while the powers that be play chicken with one another. 
*Based on this white paper.