Going over the fiscal cliff: A break down on how it will affect you

Going over the fiscal cliff: A break down on how it will affect you »Play Video
Mitzie Krivach, of Johnstown, Pa., buys milk at Randy's Bi-Lo Foods in Johnstown, Friday, Dec. 28, 2012. Adding to the woes confronting the middle class if a fiscal cliff deal couldn't be found was a pending spike of $2 per gallon or more in milk prices if lawmakers failed to pass farm legislation by year's end. (AP Photo/Tribune-Democrat, John Rucosky)

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PORTLAND, Ore. – If Congress and President Barack Obama can't agree on a fiscal cliff deal by the end of the year, taxes will increase for almost everyone and deep spending cuts will occur, potentially taking the nation back into a recession.

Here's a look at how "going over the cliff" will affect you from your paycheck to your sale of stocks. Local financial advisor Thomas Jensen from Vaerdi Financial guides you through those potential impacts.

And will there be a compromise by year's end? Oregon's U.S. Sen. Jeff Merkley weighs in and says "there's a very good chance" something will get done. President Obama said Friday that he's optimistic lawmakers can reach a deal.
Plus, under related content, on the left hand side of this page, you can find the latest story and some of the past stories we have posted on the fiscal cliff issue.

The Unemployed in Oregon

Next week's check will be the last check for about 25,000 unemployed Oregonians. Unless Congress reaches an agreement, federal unemployment benefits will go away for more than 2 million Americans.

So if you've tapped out on your 26 weeks of state unemployment benefits, there will no longer be another 26 weeks of federal extension benefits to help you and your family pay the bills.

In Oregon, the average weekly unemployment check is $288. More than 62,000 people are currently getting one of those checks, but the number will drop dramatically without a deal in Congress.

The Oregon Employment Department has already mailed letters to those who are in line to lose their benefits, and there're roughly 1,000 people who will max out every week after that.

President Obama and Democrats have pushed to include extended unemployment benefits as part of a fiscal cliff deal. But Republicans say the billions of dollars that it would take are too costly.

Milk prices could go sky high

Some suggest the price of milk could double if Congress doesn't pass a farm bill.

If Congress doesn't pass a new one by Monday night it will have to follow a 63-year-old-law that forces the government to buy milk at double the price, driving up the cost for everyone to roughly $7 a gallon.

The Senate passed a farm bill last week that would prevent the price increase, but the house hasn't voted on it yet.

The farm bill affects much more than milk, but milk is the most immediate concern. Other commodities aren't harvested until late spring, and beyond, including winter wheat. So if Congress does not take action on the farm bill, in the next few days, and milk prices jump up, the pressure for action will only grow as farmers look to harvest.

How the tax hikes will affect you

The average family would see their taxes jump $2,400. That's the average if your income is between $50,000 and $75,000. And that's according to the nonpartisan Tax Policy Center.

Here are a few scenarios:

  • Say you're getting by with a little over $20,000 in income each year. If that's the case, your taxes would go up 3.7 percent if Congress doesn't take action. That's $412 extra out of your pocket.

That's the low end. Let's look at the middle ground.

  • If you earn $64,484 your taxes go up 3.8 percent, costing you nearly $2,000 more a year.
  • For folks earning about $108,000 a year, your tax rate will go up 4.2 percent, costing you more than $3,500 in additional taxes each year.
  • But the biggest hit is on those who have the most: The high earners. If you make more than half a million dollars a year, your taxes are going up 5.2 percent. That's nearly $15,000 more in taxes.

Republicans and Democrats agree that if you make $250,000 or less your income taxes should not go up. But they've yet to agree on a plan to protect those rates because of their disagreement on what higher income earners should pay.

Also, the temporary Social Security payroll tax cut we've all enjoyed the past two years is about to expire. It appears that will not be extended as part of any deal. That's two percent of your salary you'll be paying in taxes.

Additionally, Social Security recipients might see their checks grow more slowly. The president and Republican leaders want to change the way cost-of-living adjustments are calculated, which would mean smaller checks over the years for retirees who get Social Security, veterans' benefits or government pensions tied to the cost of living.

And finally, millions of taxpayers who want to file their 2012 returns before mid-March will be delayed while they wait to see if Congress comes through with a deal to stop the Alternative Minimum Tax from hitting more people.

Miss the deadline? Should we panic?

The short answer: not right away. Economists say so long as lawmakers and the president appear to be working toward agreement, the tax hikes and spending cuts could mostly be held at bay for a few weeks. Then they could be repealed retroactively once a deal was reached.

The big wild card is the stock market and the nation's financial confidence. Would traders start to panic if Washington appeared unable to reach a compromise?

In what could be a preview, stock prices around the world dropped Friday. The Dow lost nearly 160 points.

Federal Reserve Chairman Ben Bernanke has warned lawmakers that the economy is already suffering from the uncertainty of the fiscal cliff and they shouldn't risk making it worse by blowing past their deadline.

Part 1: Financial Advisor Thomas Jensen at Vaerdi Financial speaks about the impact of going over the cliff on your 401(k), stocks and capital gains. Watch below:

Part 2: Financial Advisor Thomas Jensen at Vaerdi Financial speaks about the impact of going over the cliff on your taxes, dividends and the sale of your stocks. Watch below:

Interview with Sen. Jeff Merkley, D-Oregon. His thoughts on getting a deal done.