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How a Failed Fiscal Negotiation May Affect You

The nation is at it again. This time the country is bracing on a much quicker impact. If by Jan. 1 and the country’s leaders have not come up with an agreement, then the nation will head down the fiscal cliff.

With the fate of the entire nation at stake, lawmakers had to be called back to work to deliberate the issue throughout the entire holiday week. President Obama had to cut short his family vacation and head back to Washington with the intention of ending the stalemate between him and GOP House Speaker John Boehner.

So far both parties are not willing to enter into any compromise.

Experts say that even without a deal is reached, retroactive fixes and other dealmaking could still save everyone from the most devastating effects of the fiscal cliff.

Meanwhile, the Tax policy Center, a non-partisan think tank, maintains that 9 out of 10 Americans would immediately feel the impact beginning Jan. 1 should no deal is sealed. The most tangible effect will happen first on everyone’s paycheck as they will no longer enjoy any tax holiday.

The Tax Policy Center illustrates the effect of a failed negotiation come midnight of Jan.1:

  • Americans in the lowest 20 percent of the income scale could pay an average of about $400 more in taxes.
  • Middle-income households could pay about $2,000 more in taxes, on average.
  • The top 20 percent of taxpayers could pay about $14,000 more a year in taxes, on average.
  • The top 0.1% could pay an average of $120,000 more in taxes.

Other changes include an increase in the tax for capital gains from 10% to 20%, dividends will be taxed as ordinary income, and inheritance tax will increase to 55% for estates above $1 million.