WASHINGTON, Oct. 3, 2012 (LID) – Pressing tax matters await the victor of the November 6 presidential election.
Whether Barack Obama (D) or Mitt Romney (R), the president and Congress have precious little time to avoid taking the nation over the “fiscal cliff,” as many observers have called it. That’s because a bevy of tax breaks are set to expire.
A report issued this week by the nonpartisan Washington-based Tax Policy Center, Brookings Institution and the Urban Institute paints a gloomy picture. If the president and lawmakers fail to act, federal taxes for most Americans will increase significantly and government spending slashed.
“The fiscal cliff threatens an unprecedented tax increase at year end. Taxes would rise by more than $500 billion in 2013–an average of almost $3,500 per household–as almost every tax cut enacted since 2001 would expire,” reads the report.
Set to expire is the payroll-tax break that was enacted in 2008 and extended twice to help stimulate the lagging national economy, under Obama’s stimulus program.
The 2 percentage-point reduction in the payroll tax that funds Social Security means about $80 a month more in take-home pay for a worker earning $50,000 a year.
The White House has said about 122 million workers enjoy the tax break, from 6.2 percent to 4.2 percent, on wages up to $110,100. Partisan disagreement over tax policy threatens the tax break, proponents say.
Some Republicans have questioned whether it’s prudent to allow another $120 million reduction in workers’ Social Security contributions.
Obama and congressional Democrats largely want to raise income taxes on single workers who earn more than $200,000 or couples who earn more than $250,000. Meanwhile, Republicans want to reduce tax rates on top earners.
Democrats have decried the Romney tax-reform plan, saying the Republican wants to bankroll tax breaks for the nation’s ultra-rich on the backs of the middle class.
Also set to expire next year are the bevy of tax cuts made during President George W. Bush’s administration. If allowed to expire, the top income tax bracket would rise four points, to 39 percent, and taxes on capital gains and dividends would increase significantly.
On top of looming tax deadlines, the White House and Congress have the specter of automatic, across-the-board budget cuts next year.
The impending federal budget sequestration has loomed for nearly a year, since the months-long bipartisan talks aimed at cutting the federal deficit failed last fall.
The 12-member so-called Supercommittee of House and Senate members were unable to agree on how to trim $1.2 trillion over 10 years.
In the absence of a deficit-slashing agreement, the Budget Control Act (Pub. L. 112-25), which authorized the Supercommittee, calls for sequestration, or automatic spending cuts, to be triggered Jan. 1, 2013.
The Joint Select Committee on Deficit Reduction was formed last August, under the terms of a bipartisan deal to raise the U.S. government’s debt ceiling following the historic downgrade of the U.S. credit rating by Standard & Poor’s Ratings Services.
The Tax Policy Center report is available (.pdf), at http://www.taxpolicycenter.org/UploadedPDF/412666-toppling-off-the-fiscal-cliff.pdf.
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