By Christina Postolowski

I never quite understood why Thelma & Louise (SPOILER ALERT) drove off the cliff in the end of the movie. (For those too young to remember, it’s about two female friends who take a road trip that goes terribly wrong.) Sure, by the end of the film they felt like they had exhausted all alternatives. But I always thought there had to be something they could have done along the way to avoid disaster.

Like that 1966 Thunderbird convertible plunging into the Grand Canyon, the country is about to ride off a “fiscal cliff” at the end of this year. If Congress doesn’t reach a bipartisan deal, automatic tax increases and spending cuts will take effect starting in 2013.

The cuts could slash financial aid for college, youth employment services, and AmeriCorps. We all know some young person who relied on these investments to get ahead. The impact of tax increases, however, isn’t always as obvious. In order to break down how the fiscal cliff tax increases affect the pocketbooks of young adults, let’s take a little “road trip” of our own.

• If the payroll tax cut expires, 121 million households will see their take-home pay decrease by an average of $1,000 a year or $20 a week.

• If the American Opportunity Tax Credit (AOTC) for higher education expenses expires, the number of households receiving this benefit and the amount they receive will decrease.
  • For example, a married couple with two children, working full-time at minimum wage, and with college tuition expenses of $4,000, will receive $1,000 less, falling from $1,085 to just $85.

• If the expansions to the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) expire, more than one-quarter of young adults will see their household’s taxes increase.
  • For example, a young married couple with three children that has earnings at the estimated poverty line for 2013 will receive $1,934 less in combined EITC and CTC benefits next year if those credits expire.

• Rather than let tax cuts expire for all Americans, many, including the current Administration, have proposed letting the Bush tax cuts expire for the top 2% of taxpayers – those with incomes above $200,000 for individuals and $250,000 for married couples.
  • Far fewer young people would be affected: 99.5% of young adults earn less than $200,000 per year.
  • Letting cuts expire for top earners would save $1 trillion over the next 10 years, and fund investments in areas like higher education and job training.

The fiscal cliff has real financial consequences for young Americans and all Americans. If our representatives in Washington fail to act responsibly, automatic spending cuts and tax increases could do real economic harm. Hopefully our leaders in Washington will come together and steer us onto a safer road.

For more information, see Young Invincibles’ November 2012 Fact Sheet on The Fiscal Cliff, Taxes, and Young Adults.