Picture this: It’s the new year and Congress and the White House still don’t have a budget deal. Don’t look now, but we’ve gone over the “fiscal cliff.”
That means most federal programs will be cut between 7.6 and 9.6 percent across the board. Income tax rates will go up. And there’s a host of other unresolved financial issues that we’ll be facing.
We turned to a number of policy experts around AARP. Here are their answers.
What will happen to my paycheck?
That’s everyone’s number one question. Though by law income tax rates will return to higher 2001 levels, you probably won’t see any changes in your paycheck right away. Without official guidance from Washington, payroll administrators will likely stick to the 2012 withholding tables for paychecks, at least for the first few pay cycles of the year. But if a deal isn’t reached pretty quickly, you may see more of your paycheck going to Uncle Sam.
What about payroll taxes? Haven’t I been paying less to Social Security the last couple of years?
Since 2011, you’ve been paying 2 percent less of your earned income into Social Security – a move that was designed to help stimulate our troubled economy by giving more people more money to spend. But that so-called “payroll tax holiday” will end in 2013, so now you’ll take home 2 percent less.
I’m on Medicare. What happens to my benefits?
Good news: No change in Medicare benefits, including Part D low-income premium and cost-sharing subsidies and catastrophic subsidy payments.
Will Medicare pay my doctor for my visit?
Yes, your doctor will still be paid, but a smaller amount. Until a deal is reached, Medicare will reduce reimbursement to physicians and certain other health care providers by 29 percent. Unfortunately, that could mean some doctors will decide they can no longer afford to see Medicare patients.
Will anything happen to my Social Security benefits?
No worries here. Social Security retirement and disability payments were exempted from the budget cuts.
What about Medicaid and Veterans Affairs compensation payments?
The same as for Social Security – no change. That’s also true for SNAP (formerly the food stamps program) and Supplemental Security Income (SSI).
I’ve been out of a job for more than a year. The federal emergency unemployment benefits have kept my family going. Will that stop?
Unfortunately, yes – and abruptly – for you and 2.1 million other unemployed Americans. Another 1 million people who don’t have jobs will also exhaust their state benefits in early 2013 and lose their benefits, according to the National Employment Law Project, an advocacy group.
Will Meals on Wheels keep delivering to my home?
Though the program is subject to the across-the-board cut, it’s unclear what effect that would have immediately. Chances are good that nothing will happen to the program in the short term.
What will happen to the economy?
A projection by the Congressional Budget Office predicts a return to recession, with unemployment rising to 9.1 percent by the fourth quarter of 2013.
What could happen to my retirement investments?
The long-term effect of all this on your investments is anyone’s guess. If we do go over the fiscal cliff, many Wall Street watchers think the stock market will tumble as a result of the projected decline in our gross national product – and the gridlocked situation in Washington. But once a deal is reached and the federal budget situation stabilizes, many think the markets will likely recover – and even improve. So depending on where your money is, this could have a positive effect on your portfolio. Still, all this is highly speculative at this point.
If you are relying on your investments for retirement income, expect to see an immediate impact if we go over the fiscal cliff. That’s because you’ll be paying a higher tax rate on distributions from your 401k or other retirement plans as of January 2013. Taxes on capital gains and dividends in other investment accounts will rise as well. In the long run, taxes on income for your investments could go up – or down – depending on your income bracket and on what Congress ultimately decides to do.
Will the national park I’m planning on taking my RV to be closed?
Hit the road, Jack. While Interior Department officials publicly refuse to discuss the impact of cuts, a memo distributed internally tells national parks staff that nothing should change in the short term.
- What’s the ‘Fiscal Cliff’?
- Ronald Reagan’s 9 Wisest Words About Social Security
- Faceoff: The Fiscal Cliff and Social Security
- Demystifying the COLA Cut Known as Chained CPI
- Why Inflation Matters for Social Security