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Taxes: Are we standing on the edge of a 'fiscal cliff'?

1:48 PM, Oct 5, 2012   |    comments
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CLEVELAND -- There was a lot of talk about taxes during the debate, but an actual decision on renewing significant tax cuts won't likely be made until after the election.

Looming is a dramatic income tax increase if the so-called Bush tax cuts, implemented in 2001, aren't renewed.

The result could be fewer jobs and a double dip recession.

If it's the economy driving the presidential race, it is the Bush-era tax renewal that will drive the economy.

"There are a lot of rich people, individuals and corporations who don't pay enough in taxes," downtown worker Kerry Flood-Mellen said.

Rich or poor, we all stand to take a tax hit in 2013 if Congress does nothing. Are we heading for what some are calling the "fiscal cliff"?

"Withholding will go up so their monthly income, the 2 percent FICA witholding, will go away. The marriage penalty will kick back in," accountant Mary Eileen Vitale said.

CPA and partner at Howard Wershbale, Mary Eileen Vitale says hardest hit will be the average wage earner. They can expect to pay some $3,500 more in income tax.

The current debate in Congress, is on whether to reinstate the tax breaks for only those making less then $250,000.

"Those are the folks that buy the toasters, which generates the production of the toasters, which benefits those who are over $250,000," downtown worker Mark Trubiano said.

It's a deal breaker for most Republicans. Those making $250,000 or above would pay up to 44 percent on investment income, which includes a 3.8 percent Medicare tax.

"Nobody wants to compromise. If you compromise, you're sleeping with the enemy," Trubiano said.

In an already slow economy, tax breaks are stimulus. Without them, consumers spend less, small businesses don't expand, big business is less inclined to hire.

Just the threat is already having an impact on Vitale's clients.

"They are looking at, should they take their capital gains now. There are lot of people in small business thinking are they going to sell them," Vitale said.

Vitale recommends those with long-term investments stay the course. Even if nothing is done this year, Congress can renew those tax breaks retroactively in 2013.

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