Warning on coming "fiscal cliff" or "taxmageddon"
Roughly 100 tax cuts are set to expire at the end of this year and the largest tax hike in history is due to strike the United States on January 1, 2013, with an average tax increase of nearly $4,000 per household. Most observers anticipate that lawmakers will address the expiring tax breaks, as well as the looming federal debt limit and $1.2 trillion in automatic spending cuts, in a lame-duck session of Congress following the election. The mounting challenges commonly are referred to as the “fiscal cliff” or “taxmageddon.”
From "Heritage Sounds Warning on Taxmageddon" - How could nearly half a trillion dollars in higher taxes hit the American people so fast? What hath prior Congresses wrought? Heritage’s Curtis Dubay explains that the tax hikes come from a series of expiring tax cuts and the imposition of even more new taxes. And Heritage’s J.D. Foster writes that Americans can expect to see the following tax consequences starting next year:
- Income tax rates shoot up,
- The child credit is cut in half,
- The marriage penalty roars back,
- The capital gains tax rate goes up,
- The dividend tax rate soars,
- The payroll tax rate jumps two percentage points,
- The death tax is restored to its punitive past,
- The Alternative Minimum Tax relief expires, and
- A uniquely pernicious additional payroll tax hike from Obamacare takes effect.
From: http://www.moneynews.com/Economy/Heritage-Warning-Taxmageddon-economy/2012/05/11/id/438771 and http://www.askheritage.org/how-can-we-stop-the-largest-tax-hike-in-history/?utm_source=AH_Weekly&utm_medium=Email&utm_content=2012-05-18&utm_campaign=2012_Brand
Michele Bachmann: We're heading towards 'Taxmageddon'
We all know that we have never seen anything in the history
of the United States like this accumulation of debt! And this is how bad it is.
It took 219 years to accumulate about $8.67 trillion in debt. And now President
Obama is way over $5 trillion in additional debt in less than four years. Now
we're looking at about $16 trillion of debt by the end of the year. We're in
unchartered territory...But here's more disturbing news. We are now again
pushing up against the debt ceiling Congress extended last August. So will
Congress again raise the ceiling? One thing is certain, the next round about
raising the debt ceiling or not will be a bloody fight.
From: http://www.foxnews.com/on-air/on-the-record/2012/05/16/bachmann-were-heading-towards-taxmageddon
'Taxmageddon' Storm to Hit in 2013
http://www.examiner.com/article/taxmageddon-storm-to-hit-2013
'Taxmageddon' Storm to Hit in 2013
A confluence of circumstances will create the Perfect Storm for taxpayers come 2013 in what is being billed as “Taxmageddon.” Unless something happens, be prepared to take a huge hit to your wallet next year.
About $500 billion in tax breaks expire in 2013, which will cost U.S. households with an average tax increase of nearly $4,000. If Congress doesn’t act, and so far the Democratic-controlled Senate seems incapable of doing anything, about $165 billion in Bush-era tax cuts expire. That means the lowest tax bracket will increase from 10 percent to 15 percent. The child tax credit will decrease from $1,000 to $500 a child, the marriage penalty will return, and tax on dividends (which many seniors rely on) will soar from 15 percent to as high as 39.6 percent. Hmmm, I thought Bush’s tax cuts were for the rich?
The lowest tax rate increasing 50 percent? Hurts the lower class.
Child tax deductions decreasing? Hurts lower and middle class families the hardest.
Return of the marriage penalty tax? Hurts lower and middle class families the hardest.
Soaring taxes on dividends? Hits fixed-income seniors the most.
In addition, the temporary cut in the payroll tax (Social Security taxes) of 3 percent comes to an end this year too. That is a $125 billion tax increase. And a temporary fix to the alternative minimum tax would be nullified. That will hurt 34 million taxpayers; again largely lower to middle class families.
According to Curtis Dubay of the Heritage Foundation, 70 percent of ‘taxmageddon’ falls on middle and low income families. “That is because 60 percent of the Bush tax cuts went to middle- and low-income taxpayers,” Dubay said. The payroll tax cut also hits the same taxpayers the highest.
This $500 billion hit not only hurts people’s pocketbooks but it also will negatively impact the economy. Jim Capretta, a former official with the White House Office of Management and Budget who now works for the Ethics and Public Policy Center, told Fox News that this means we’ll have “an economy that’s about one to two percentage points smaller than it otherwise would have been, and unemployment that’s a full percentage point higher that it otherwise would have been.”
Currently, the U.S. economy is growing at about a 2 percent clip. So, if the tax increases take effect that 2 percent hit on economic growth could send the economy back into a recession. Not that the economy is all that stellar now. We’re barely treading water.
Nothing will get done because it is a presidential election year. The Republican House budget proposed major tax reforms. But that budget has been vilified by President Obama as “social Darwinism” and, of course, the Democratic-controlled Senate, ruled by Democratic Sen. Harry Reid, hasn’t even produced a budget in three years and will not produce one this year. Reid won’t even let the Senate vote on the House Republican budget.
To avoid, ‘taxmageddon’ from occurring, a lame duck Congress and a possible lame duck president will have to work it out after the November elections, in a 30-day window from the end of November to the end of December. That is no way to run a country.
So, while President Obama jets all over the country touting his desire to have a Buffet Tax, which will only bring in at best $4 billion a year in revenue to the government, he says nothing about a Perfect Storm of tax increases that will hit the middle and lower classes the hardest.
That $4 billion that Obama is so desperate to get? It accounts for about one days’ deficit spending. That $4 billion is barely a morsel of a budget that is nearly $4 trillion.
What is so especially interesting about these impending tax increases is that most of it comes from expiring Bush-era tax cuts. Tax cuts that benefited middle and low income families. Not the rich.
So, the next time someone tells you the Bush tax cuts were for the rich, remind them of this impending tax increase that will hit the middle and lower class families the hardest. I would call it the “Democratic Tax Increases on the Poor.”
How Can We Stop The Largest Tax Hike in History?
http://www.askheritage.org/how-can-we-stop-the-largest-tax-hike-in-history/?utm_source=AH_Weekly&utm_medium=Email&utm_content=2012-05-18&utm_campaign=2012_Brand
The largest tax hike in history is due to strike the United States on January 1, 2013. Known as “Taxmageddon,” it would impose $494 billion in higher taxes on the American people in the first year. So terrible would be its impact that yesterday Fed Chairman Ben Bernanke warned Senate Democrats that the country is headed toward a “fiscal cliff” and that Congress must deal with the impending tax nightmare.
On Wednesday, House Speaker John Boehner (R-OH) announced that his chamber will take up the issue before the November election. Knowing Washington’s general reluctance to do anything of substance in an election year, Boehner’s announcement was welcome news given the disastrous ramifications the threat of such a massive tax hike is already having on the economy. That’s according to Mohammed El-Erian, CEO of Pimco, the world’s largest bond trading firm. El-Erian argues a “prolonged political inaction is likely to postpone building plants and purchasing equipment and to discourage them from hiring.” And that is only an inkling of the blow that would strike the economy if these tax hikes actually took effect.
Taxmageddon is not the only tax problem. A consensus is coalescing in favor of fundamental tax reform, and many members of Congress understandably want real progress. Fortunately, there’s a solution if Congress gets its act together and decides to take action. Foster writes that solving America’s tax problem should be a simple two-step process:
Step 1) Prevent Taxmageddon. If Congress doesn’t act, Foster says, “The effects on families and businesses would be devastating; the effects on the economy no less so. Congress should make current tax policy permanent and eliminate, once and for all, this cavalcade of tax hikes.” Washington should take action before the election and before the tax hikes hit in order to bring more certainty to the economy and give taxpayers much-needed relief. Taxmageddon is anti-tax reform, a big step in the wrong direction.
Step 2) Usher in true tax reform. America’s tax code inhibits growth and bedevils taxpayers with its maddening complexity. Having prevented a big step in the wrong direction with Taxmageddon, Congress should then lower marginal tax rates and eliminate taxes on saving and investment while eliminating the many ill-advised deductions, exemptions, and credits that distort the economy and clutter the tax code. Foster points to Heritage’s New Flat Tax, contained in the Saving the American Dream Plan, as the best way to simplify the tax code, make it more fair, and encourage the kind of economic recovery America needs.
Speaker Boehner warned that if Congress does not take action soon, “We’re going to have this mess all stacked up until after the election. And you want to talk about a train wreck? You’re talking about a big one.” He’s right. The American people can’t afford the $494 billion Taxmageddon train wreck, and the time is ripe this summer for Congress to do something to prevent it.
GOP: House vote on cuts to forestall 'taxmageddon'
But effort could hit the skids in the Senate
http://www.investmentnews.com/article/20120520/REG/305209978
Well before Congress hurtles toward the so-called fiscal cliff in late December, House Republicans will make clear that they favor extending the Bush-era tax cuts.
Last week, Speaker John Boehner, R-Ohio, said that the House will vote prior to the election to “stop the largest tax increase in American history.”
He means that the House intends to take up a measure to continue the Bush tax cuts, enacted in 2001 and 2003, that lowered each level of personal rates, and reduced capital gains and dividend rates to 15% each. The policies expire Dec. 31.
In addition to the Bush tax cuts, a raft of other tax breaks also expire at the end of the year.
Curtis Dubay, a senior policy analyst at The Heritage Foundation, estimates that the economy will be hit with a $494 billion tax increase if Congress doesn't act.
Most observers anticipate that lawmakers will address the expiring tax breaks, as well as the looming federal debt limit and $1.2 trillion in automatic spending cuts, in a lame-duck session of Congress following the election. The mounting challenges commonly are referred to as the “fiscal cliff” or “taxmageddon.”
House Republicans are portraying their upcoming vote on the Bush tax cuts as a way to illuminate the murky tax picture. The legislation also will include a provision to establish a fast track for broad tax reform next year.
“We need an extension that creates a level of certainty ... and then move into a framework where you can really begin to deal with large tax reform questions,” Rep. Peter Roskam, R-Ill., the House chief deputy whip, said at a Capitol Hill event last Thursday with four corporate chief financial officers who were promoting low capital gains and dividend rates.
“There's a sense of clarity about moving forward and passing [an extension of the Bush tax cuts] out of the House so that the public knows if their lawmakers are afoot or horseback,” Mr. Roskam said.
NO RESOLUTION IN SIGHT
Democrats are accusing Republicans of trying to make the rich richer.
“Democrats will again fight to extend the tax cut for the middle class and work to ensure that the wealthiest Americans pay their fair share as we reduce our deficit,” House Minority Leader Nancy Pelosi, D-Calif., said in a statement. “While the Republicans continue to protect millionaires and the special interests, Democrats are committed to acting quickly to ensure certainty for America's middle class and small businesses.”
Resistance from House Democrats signals that tax policy is far from being resolved.
“Speaker Boehner's speech is just the beginning of a long process that is going to run right up to the end of the year,” said Clint Stretch, managing principal of Deloitte Tax LLP. “If I had to bet, toward the end of the year, we do extend everything for one year because that's the path of least resistance.”
As with most politics in Washington, the key tension point will be between the Democratic-majority Senate and the Republican-majority House.
“The Senate is going to be the challenge,” said Brian Reardon, executive director of the S Corporation Association of America. “It's unclear what they're going to be able to pass over there.”
Although it looks as if both parties will resort to the brinkmanship that has characterized fiscal and tax policy negotiations over the past few years, the fact that the House will vote on a Bush tax cut bill before the election provides some needed momentum, according to observers.
“Anything they can do to get the process rolling gives them a better chance of getting things wrapped up before the end of December,” said Phillips Hinch, assistant director of government relations at the Financial Planning Association.
If Congress hasn't extended the Bush tax cuts by Jan. 1, the capital gains rate will rise to 20%. Dividends will be taxed at personal rates, the highest of which will be 39.6%.
Advisers back the lower rates.
“The tax incentive is an important element in encouraging people to invest in the equity markets,” said Scott Moser, chief executive of Moser Wealth Advisors PLLC. “Right now, everything is going into fixed income.”
MIDDLE-CLASS ISSUE
In order to broaden the appeal of their effort to keep the capital gains and dividend rates low, Republicans are arguing that the primary beneficiaries of the policies are in the middle-income range.
According to Rep. Lynn Jenkins, R-Kan., a member of the House Ways and Means Committee, 50% of those who pay capital gains taxes earn less than $100,000 a year.
“These are hardworking Americans who will be impacted if these rates go up,” she said at the Capitol Hill meeting with the corporate chief financial officers, which was organized by The Alliance for Savings & Investment.
Whether Congress acts by Dec. 31 or not, the capital gains and dividends rates — wherever they stand — will increase by an additional 3.8%. On Jan. 1, a tax hike on passive income contained in the health care reform law will kick in.
“I know no clients realize it,” said Tom Moore, an investment adviser with Capital Investment Advisors LLC. “When you tell people, they're absolutely shocked about it.”
Perhaps the best way to keep investors calm will be for Congress to provide certainty about tax rates well before midnight on New Year's Eve.
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