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Locals brace for fall off Fiscal Cliff

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news Detroit Lakes, 56501
Detroit Lakes Minnesota 511 Washington Avenue 56501

Becker County Human Services is gearing up for more business if the nation goes over the Fiscal Cliff on Tuesday.

Leaders in Washington were meeting Friday to try to fix the problem, but if they fail, the package of tax increases and spending cuts will affect nearly everyone, and could cause a new recession -- with layoffs and all the other problems that go along with that.

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Some impacts will be immediate: Unemployed people who receive extended federal unemployment benefits will see their checks end as of the first of the year.

Health service providers will see a cut in Medicare reimbursement.

And just about everyone will see their taxes go up.

Hitting the working poor

"That's my biggest concern," said Becker County Human Services Director Nancy Nelson. "Our numbers (of people receiving help) are already high."

The public assistance caseload in Becker County for November was 4,109 cases (one case represents one family). The county's population is about 32,000.

Assistance comes in the form of a combination of health care, food stamps and cash assistance, depending on income and family size, and the case numbers have been rising since 2006.

In 2009 there were 3,654 cases in Becker County.

"From all the way back to 2006 we had slight increases (in the number of cases). It was 2008 when it started taking off," Nelson said.

She isn't just concerned about the people losing their federal extended unemployment benefits. That will affect some 12,000 people in Minnesota, but it's not clear how many in Becker County. A call to the state DEED office was not returned Friday.

"Poor working families are going to take a tax hit," Nelson said. "We'll probably see more people coming to our doors."

The loss of the earned income tax credit will hammer the working poor hard, since it can provide thousands of dollars in income.

Becker County has a high poverty level, and a high number of working poor -- as well as a higher than average number of disabled residents, Nelson said.

To those who lose their unemployment benefits or otherwise find themselves in trouble because of the Fiscal Cliff fallout, Nelson said, "Come into this office and fill out an application, we'll tell you what programs you're eligible for."

The Becker County Food Pantry is also an option, she said.

Programs that are safe from cuts include Social Security, Medicaid, supplemental security income, refundable tax credits, the children's health insurance program, the food stamp program and veterans' benefits.

The White House has also said that military personnel would be exempt from the cuts, according to CBS News.

At Rural Minnesota CEP, there is a concern about the fiscal cliff, said Terry Janes, director of operations.

"One of the things that is going to happen (if the extended federal unemployment benefits end suddenly) there will be a run on our services," Janes said. "They'll be wondering what they can do next."

The good news is that more employers are hiring, but that might slow down over concern about the economy if Washington doesn't quickly solve the problem, she said.

Regular unemployment benefits will not be affected, just the extended federal program, she stressed.

If you do end up unemployed, don't just "sit it out," she said. CEP has education and retraining dollars available. People can get one or two-year degrees, finish that last year of college, or take a short training course, like a welding course that is coming up at M State, she said.

"It's a golden opportunity," she said. "I would hope they'd take advantage of it."

Sometimes people who are laid off are in shock or believe it will just be a short-term thing, but they need to be proactive, she said.

"It just hurts to think that people are wasting their unemployment insurance benefits -- they could be getting retrained, and employers are more interested in hiring people who are working or who have upgraded their skills," she said.

Higher taxes for all

If Washington can't find a way to avoid the Fiscal Cliff, here's how it will affect your income taxes, according to CBS News:

• Annual income of $20,000 to $30,000: $1,064 average tax increase.

• Annual income of $40,000 to $50,000: $1,729 average tax increase.

Annual income of $50,000 to $75,000: $2,399 average tax increase.

Annual income of $75,000 to $100,000: $3,688 average tax increase.

Annual income of $100,000 to $200,000: $6,662 average tax increase.

• Singles who make over $200,000 and married couples who earn over $250,000 would see their tax brackets rise from 33 percent and 35 percent to 36 percent and 39.6 percent, respectively.

In addition to higher capital gain and dividend rates, the Affordable Care Act applies a new surtax of 3.8 percent on capital gains for wealthy Americans, pushing the top capital gains rate up to 23.8 percent.

Finally, the estate tax exemption is set to drop back to $1 million dollars, with the rate increasing from 35 to 55 percent.

• Annual income of $200,000 to $500,000: $14,643 average tax increase.

• Annual income of $500,000 to $1 million: $38,969 average tax increase.

• Annual income of more than $1 million: $254,637 average tax increase.

None of these numbers include the Alternative Minimum Tax, designed to prevent tax-avoidance by the wealthy, that will now hit millions of middle class taxpayers.

In Minnesota, it could affect as many as 600,000 people, or a quarter of the state's taxpayers, according to Minnesota Public Radio.

And here's more bad news. While most of the tax increases at stake in the fiscal cliff would apply to tax year 2013, the one involving the alternative minimum tax applies to this year's return.

People will be very unhappy to find out that the taxes due April 15 are much higher than they were expecting.

Also, a temporary cut in payroll taxes will go away, increasing those taxes by a third.

Big cuts loom

Taxes are just part of the equation: About $1.2 trillion in federal spending cuts are scheduled to kick in next year, or roughly $110 billion a year for 10 years.

Those reductions would be divided equally between the Pentagon and discretionary programs, or those that don't have earmarked funds.

That means that there could be cuts in everything from infrastructure to schools, to public health and homeland security.

Collectively, the tax increases would be the steepest to hit Americans in 60 years when measured as a percentage of the economy, according to Minnesota Public Radio.

The economy would be hit so hard that it would likely sink into recession in the first half of 2013, economists say.

Up to 3.4 million jobs would be lost, the Congressional Budget Office estimates. The unemployment rate would reach 9.1 percent from the current 7.7 percent. Stocks could plunge. The nonpartisan CBO estimates the total cost of the cliff in 2013 at $671 billion.

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