FIRST PERSON | The term "fiscal cliff" has been hovering over Americans, a dark cloud that has cast a shadow over the holiday season. Its potential consequences have caused consumer confidence to dwindle, yet the fiscal cliff hasn't produced too much stress in our household. After all, for the past few years my family has dealt with salary cuts and a depressed economy. As a 33-year-old mom living in Los Angeles, I don't like the financial uncertainty the "cliff" represents. But the deal approved Tuesday night won't make or break my family's finances. Here's a look.
Child tax credit
The fiscal cliff deal is supposed to extend the child tax credit. With an almost 1-year-old boy and a 4-year-old girl, we are looking forward to this credit that will again give us $1,000 per child. As parents know, children are expensive. Diapers alone will cost us $500 this year. This extra money gives our savings account a much needed refill. If Congress failed to extend the credit, we would have reportedly received only $500 per child. This wouldn't devastate our family. However, it would make our finances much tighter.
Although the deal promises a continuation of the Bush tax cuts for those making less than $400,000, this doesn't mean the middle class won't see any tax hikes. After all, the deal doesn't include an extension of the payroll tax holiday. In other words, many middle-class Americans will see a 2 percent increase in Social Security taxes.
Yet, since my husband is a teacher and doesn't pay into Social Security in California, the elimination of the payroll tax holiday won't affect our family directly. In fact, our bank account was influenced more by the Making Work Pay tax credit. This credit gave households a "refundable credit equal to 6.2 percent of earned income," according to the National Review
Unfortunately it expired at the end of 2010 and was replaced by the payroll tax holiday. Without some sort of tax credit, we will continue to cut back on luxuries -- less eating out and fewer family vacations. We will also need to reduce spending on groceries, gas and clothing by about $200 a month. Any extra money will be saved for a financial rainy day or retirement. Right now, we are trying to put away $100 each month into our savings account.
I know this is not the end of the fiscal cliff. In fact, more uncertainty is looming in my family's future. However, although the cliff deal isn't 100 percent positive, I know things could always be worse. Hopefully, we won't be falling off the edge anytime soon.
- Budget, Tax & Economy
- Child tax credit