With the fiscal cliff looming just a few months away, financial experts say the impact on many New Yorkers' wallets could be harsh should lawmakers fail to act. NY1's Tara Lynn Wagner filed the following "Money Matters" report.
Unless lawmakers take action by end of the year, the nation will find itself on the edge of the so-called fiscal cliff -- a situation that could be as dire as it sounds.
"You're going to see a massive increase in taxes on an individual basis, you're going to see tax credits expire and there is going to be an effect on the economy," says Morgan Stanley Executive Director Mark Seruya.
For starters, a wide array of tax cuts -- most of them enacted under President George Bush -- are set to expire. The result: An increase across the board. Say you're currently in the 18 percent tax bracket. Joseph Falanga, managing director at UHY Advisors, says you'll feel the pinch.
"You could be looking at a 20 percent tax rate. Those that are in the top rate of 35 percent will be looking at a 39.6 percent tax rate," Falanga explains.
At the same time, many deductions and credits could go down, or go away. The child tax credit for instance would be cut in half from a maximum of $1,000 per child to just $500.
And then there's Wall Street where investors will see taxes on capital gains and qualified dividends jump substantially.
"This is going to be a very negative effect for the individual investor as well as for the economy," Seruya says.
So what does this mean for your wallet? The Urban-Brookings Tax Policy Center estimates the average American household will see their tax burden jump by almost $3,500.
"It could cause another recession because it will reduce people's ability to spend money," Falanga notes.
And that's only half of the equation. The other half involves massive spending cuts which, according to the Center for Regional Analysis at George Mason University, will result in the loss of over two million jobs.
All of this happens unless lawmakers take action before the year's end. While experts expect they will, what they'll decide is anyone's guess. Many say right now the best thing you can be with your financial plan is proactive and flexible.
"You can't have your investment strategy in stone right now," says Seruya. "It needs to be in a constant change that's why it's most important to sit down with your advisor at this point in time."