The Fiscal Cliff Deal: What this means for you and the City of Chicago
January 2, 2013
While most of you were enjoying the New Year’s Day holiday, national politicians were working away on a deal to avoid going over the “fiscal cliff”. Late last night the White House, Congress, and the U.S. Senate came to an agreement.
How does the deal affect you?
• The money taken out of your paycheck to pay for Social Security was temporarily lowered in 2011 and now returns to the original rate or 6.2%
• If you make more than $400K a year ($450K if you’re married), then your income tax rate will rise from 35% to 39.6% and the tax rate on your dividends and capital gains will rise from 15% to 20%
• If you make less then $400K ($450K if you’re married) nothing else will change
How does the deal affect the City of Chicago?
Last year, households in Chicago earned $57 Billion in wages. The taxes described above will likely reduce each household’s money available to spend, save, or invest by approximately 2.3% or $1.3 Billion dollars next year. That could mean nearly $25 million dollars in lost sales tax revenue for the City.
While these tax increases will hurt, we should keep in mind that this is two-thirds less than we would have faced if we had gone over the “fiscal cliff”. This deal allowed us to avoid losing $2 billion dollars in potential economic activity here in Chicago.