Monday, 21 May 2012 12:23

Taxmageddon Confrontation Has Already Begun

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Forty-one Senate Republicans sent a letter to Senate Majority Leader Harry Reid last week urging him and Senate Democrats to start addressing “taxmageddon” — the impending tax hikes that will drain $500 billion out of the economy every year starting January 1st, unless something is done:

It is essential that Congress and the president address these coming tax increases this summer, rather than creating additional uncertainty for families and job creators by waiting until the last possible minute. The time to begin is now.

[If nothing is done] this would be, without any exaggeration, the largest tax increase in American history.

House Speaker John Boehner, on ABC’s This Week, added:

We’re looking at the largest tax increase in American history on January the 1st. We’re looking at big cuts to our Department of Defense. And we’re looking at an increase in the debt limit. Why do we want to wait to rush this through at the end of the year after the election?

Speaking for the Democrats, Rep. Nancy Pelosi (D-Calif.) drew the line in the sand:

[We] 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 out deficit.

While 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 business.

Senator Charles Schumer (D-N.Y.) made it clear that the only agreement likely to pass the Senate will have to include tax increases:

The answer is very simple to our Republican colleagues who want to help…: revenues. The way to deal with [this] is to put revenues on the table.

As examined here the total of all the tax increases will take $5 trillion out of the productive economy over the next decade, and still would not be enough to close the deficit significantly. Those increases include:

  • Applying the Alternative Minimum Tax, or AMT, for the first time to 25 million taxpayers starting in 2013
  • Eliminating the deductibility of state or local taxes on federal returns
  • Reinstituting the Marriage Penalty tax
  • Cutting the child tax credit by half
  • Reinstituting the “death tax” – estate taxes would kick in at 55 per cent on anything above $1 million
  • Increasing the capital gains tax by 33 percent
  • The kicking in of half-a-dozen taxes buried in Obamacare, and
  • Ending the payroll tax “holiday” bringing them back up to 6.2% from the current rate of 4.2%.

In addition there are other negatives: the uncertainty about what Congress will actually do if it waits until the last minute, resulting in the reluctance of business owners to take on new hires, to say nothing of the impact on the economy. Economist Mark Zandi has estimated that the dramatic increase in taxes would slow the economy by at least three percent a year, possibly pushing it back into recession.

What is clear from all of this political maneuvering is that nothing is likely to happen before the last minute and then, as usual, Congress will kick the can into next year. Clint Stretch, the managing principal at Deloitte Tax LLP, said: “If I had to bet, toward the end of the year [Congress will] extend everything for one year because that’s the path of least resistance.”

Rep. Paul Ryan (R-Wisc.) agrees with Stretch’s assessment of the political reality of passing the buck, saying that he’s “totally up” for negotiating a temporary extension of current tax policies in order to avoid the pending end-of-the-year train wreck.

Observers of the current scene then can watch with interest as maneuvering over taxmageddon increases in both volume and rancor. But the outcome is all but certain: nothing is likely to happen before the election, and the lame duck Congress will then drop-kick the issue into next year by extending current law and letting the new Congress deal with it. It’s how the system works. 

 

 

 

1 comment

  • Comment Link Beverly Martin Monday, 21 May 2012 21:27 posted by Beverly Martin

    Few of our politicians want to seriously support HR25, the FairTax, a tax plan not written by politicians but researched and paid for with $20million dollars of private money by patriots who wanted to give this country a fair and transparent tax code to replace the corrupt income tax. It is a non-partisan legislation to replace federal income and payroll taxes with a progressive, national, retail sales tax on the purchase of new goods and services used for personal use. It does not tax purchases made by businesses to do business nor does it tax used goods. The FairTax bill eliminates all personal and business income taxes, payroll, estate and capital gains taxes. It raises real wages over 10% the first year. Americans would save $400 billion of wasted yearly complying with 73,000 pages of tax regulations. It lowers the tax rates for all Americans and captures taxes from the underground economy, illegal aliens and tourist. It provides a monthly prebate to all legal American households to offset taxes on necessities. It ends the corruption of favored tax codes in exchange for donations and votes.If offers secure funding for Social Security and Medicate with a larger, more table tax base. It is revenue neutral raising the same revenues as the current system. It eliminates the IRS and can be collected by the states. Through WTO legal means, the FairTax exempts exports from taxation, while taxing imports the same as U.S. produced goods for the first time. The research can be found at http://www.fairtax.org Americans can continue with the income tax and expect more of the same (rising taxes, fleeing businesses, loss of potential foreign investment) or they can insist that their elected officials support this plan.

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