When Will We Get Off the Fiscal Cliff Roller Coaster
Now that the 2012 elections are blessedly over, our attention has been directed to another roller coaster ride popularly named the “fiscal cliff.” This would be the time, when the clock strikes 12 for New Years Day, 2013, a series of laws, including but not limited to what are referred to as the Bush tax cuts, passed over the past eleven plus years are scheduled to expire. It is also the time when massive budget cuts would take effect both as to military and domestic programs, all of this to reduce the deficit. Protected from its effect are Social Security, Medicaid, Medicare beneficiaries, civil and military employee pay, and veterans’ benefits. Potentially exposed would be a limited amount of payment to Medicare providers and departments such as National Institutes of Health, Commerce, Education, Agriculture, Federal Emergency Management Agency, and virtually any department or program not previously named including the Department of Defense. If not amended, Federal estate and gift taxes which have had generous unified credits and the AMT, alternative minimum tax, would be affected. Fifty percent of cuts would come from defense and fifty percent from non-defense and domestic spending.
Although we are on the roller coaster, we will probably not go over “the cliff.” Too much hinges on continuing expected government services and the overwhelming consensus is that to allow it to go into effect would further damage an already weakened economy. Also, if agreement is not reached immediately by January 1, there probably is enough time to turn this around if it is done shortly after as has, unfortunately happened often with recent legislation which leads to uncertainty.
I wrote about the background for the fiscal cliff back on August 9, 2011, “What Debt Ceiling Results Mean for Senior Citizens,”and noted then that debt ceiling negotiations in Congress resulted in formation of the Joint Select Committee on Deficit Reduction, also referenced as the “Super Committee,” that was charged with arriving at a deficit reduction package. Not surprisingly, no agreement was reached and, under the terms of the law known as the Budget Control Act, if the Super Committee could not agree, then automatic reductions referred to as the “sequester” were to go into effect for 2013.
Frankly, to me, the idea was unsound. As a sometimes dieter, it strikes me as similar to deciding to lose weight by removing a limb. There has to be a better way. One problem is that there are so many interest groups lobbying in so many directions, no one wants to offend anyone. There needs to be compromise to reach a result.
Considering the “cliff” I am reminded of a statement made years ago by one of my law school professors at Temple (now James Beasley) School of Law. The professor observed that, when given a choice between laws we consider fair and laws that are consistent, we should choose consistency. His reasoning then was that we can find ways around a law we consider unfair or we can administer it differently or we can ignore or amend it. Where laws are inconsistent, we do not have the opportunity to develop a plan.
Although I would not necessarily agree with him entirely, I can see the point. In 2001, prior to passage of the Economic Growth and Tax Relief Reconciliation Act, the federal estate tax unified credit was $675,000. After passage, the amount that could be passed to children (spouses have an unlimited marital deduction), increased to $1,000,000 in 2002, $1,500,000 in 2004, $2,000,000 in 2006, $3,500,00 in 2009, with a one year reprieve from federal estate taxes across the board in 2010 and a reinstatement of the tax in 2011. Estate planning using credit shelter trusts over this time was able to expand the amount saved. Then, in December, 2011, a $5,000,000 unified credit per spouse with portability was passed, essentially allowing children to inherit $10,000,000 without federal estate tax. This is scheduled to expire for 2013 potentially exposing estates for people dying in 2013 and beyond to return to a $1,000,000 unified credit adjusted for inflation.
At the other end of the spectrum, we do not know what benefits or services might be lost or scaled back if there were to be a vast reduction in government spending. We need to find ways to get off the roller coaster and plan for a more certain future.
For more, listen to “50+ Planning Ahead” a weekly radio program on WCHE 1520 on every Wednesday from 4:30 pm to 5:00 pm with Janet Colliton, Colliton Law Assocs., PC, and Phil McFadden of Home Instead Senior Care.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.