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Fiscal cliff’s costly prospects

By Kay Bell · Bankrate.com
Tuesday, October 2, 2012
Posted: 3 pm ET

Congress doesn't plan to be back in Washington, D.C., for votes on any legislation until Nov. 13. That gives lawmakers six and a half weeks to find a way to keep the country from falling off the fiscal cliff.

Good luck with that.

Not to sound too pessimistic, but I am pessimistic. This current batch of senators and representatives deserves its horrid reputation as the do-nothing Congress. I'm not convinced they'll overcome that perception after the election.

Sure, a small group of some senators is meeting unofficially to come up with alternatives to sequestration, the automatic across-the-board spending cuts facing federal programs in January 2013 if legislators can't come up with another plan to which all of Washington, D.C., will agree.

I repeat, good luck with that.

If Mitt Romney wins and the Republicans control or at least have decent numbers in both the House and Senate, the GOP won't do anything in the lame duck session. They'll just wait until the new president takes the oath of office in January and then push through at least some of the tax and spending changes they've been wanting to enact for years.

If President Barack Obama keeps his job, don't be surprised to see the partisanship on Capitol Hill continue. This will be especially evident if Republicans make gains in both legislative chambers. With no election to worry about, the president can hold firm to his principles as he looks to shape his administration's legacy in its last four years. And the GOP lawmakers could see short-term voter pain, even if it threatens their electability, as an eventual longer-term win for the party and its fiscal goals.

So what happens to all of us outside the D.C. beltway if no agreement is reached? On the spending side, defense and domestic budgets will be slashed, meaning fewer services.

As for taxes, the Bush tax cuts expire and the payroll tax reduction disappears, meaning less pay with the year's very first check. The estate tax will affect many more families. Education tax breaks will end or be reduced.

And tax extenders that already ended Dec. 31, 2011, won't be renewed. Among many other things, this means the popular $1,000 child tax credit will be halved, more married couples will again face the marriage tax penalty, and the deduction for state and local sales taxes can no longer be claimed.

It's not a pretty picture.

The Tax Policy Center, a progressive tax think tank in the nation's capital, has put a cold hard cash face on the fiscal cliff prospect. As noted in just the few examples I cited, almost every taxpayer would see a spike in his or her tax bill.

Nearly 90 percent of Americans would pay more tax in 2013, according to the Center's report Toppling off the Fiscal Cliff: Whose Taxes Rise and How Much?

Overall, taxes would increase by more than $500 billion that year alone.

While the exact financial effect depends, of course, on a person's income, the Tax Policy Center says the tax increase would average out to almost $3,500 per household.

Breaking out the effects further, the Center says a typical middle-income family making $40,000 to $64,000 a year could see its taxes go up by $2,000 next year.

And low-income households would pay more due to expiration of tax credits in the 2009 stimulus.

High-income households also would be hit hard by higher tax rates on ordinary income, capital gains and dividends and by new health reform taxes that kick in next year.

As for the country as a whole, the rising marginal tax rates would potentially affect every economic decision.

Is the Tax Policy Center being a Chicken Little or a Cassandra that we ignore at our own risk?

Not to give the tax policy group too much credit or blame, but I vote for it being a visionary prophet more than just a frantic doomsayer.

Let's hope Congress is listening and has given itself enough time to act accordingly.

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3 Comments
Deskboy
November 19, 2012 at 12:28 pm

The kid who works at my grocery store told me he that he got a $6,000 'refund' on his 1040, but his girlfriend/baby's momma got $1,500. I learned about the new IRS rule about who can claim a baby born out of wedlock on an income tax return. Sure he works two part time jobs and the girlfriend works at Burger King, but don't tell me that they paid in $7,500 in withholding and got it back as a refund.....

Romney was correct in what he tried to say....

r.sutter
November 17, 2012 at 12:26 pm

For the life of me,Idont see how the congress has gotten so much power to dictate to the president and american people,the greed and vilation of God's commandents have put this once proud nationo on The Fiscal Cliff The rich that has cheated the goverment for years out of taxes by hiding thier stolen wealth in over=sea banks. They think that the money will go with them to the cementry, but there are no vaults in the casket just thier body.thier greedy soul has left, God have mercy on them.