Monday, October 01, 2012

the fiscal cliff

WASHINGTON (AP) - A typical middle-income family making $40,000 to $64,000 a year could see its taxes go up by $2,000 next year if lawmakers fail to renew a lengthy roster of tax cuts set to expire at the end of the year, according to a new report Monday.

Taxpayers across the income spectrum would be hit with large tax hikes, the Tax Policy Center said in its study, with households in the top 1 percent income range seeing an average tax increase of more than $120,000, while a family making between $110,000 to $140,000 could see a tax hike in the $6,000 range.

Taxpayers across the income spectrum will get slammed with increases totaling more than $500 billion — a more than 20 percent increase — with nine out of 10 households being affected by the expiration of tax cuts enacted under both President Barack Obama and his predecessor, George W. Bush.

The expiring provisions include Bush-era cuts on wage and investment income and cuts for married couples and families with children, among others. Also expiring is a 2 percentage point temporary payroll tax cut championed by Obama.

The looming expiration of the large roster of tax cuts is one of the issues confronting voters in November, with the chief difference between Obama and GOP candidate Mitt Romney being the tax treatment of wealthier earners. Obama is calling for permitting rates on individual income exceeding $200,000 and family incoming over $250,000 to go back to Clinton-era rates of as much as 39.6 percent.

Both candidates call for rewriting the tax code next year, but any such effort promises to be difficult and could take considerable time.

Economists warn that the looming tax hikes, combined with $109 billion in automatic spending cuts scheduled to take effect in January, could throw the fragile economy back into recession if Washington doesn't act. The automatic spending cuts are coming due because of the failure of last year's deficit "supercommittee" to strike a bargain. The combination of the sharp tax hikes and spending cuts has been dubbed a "fiscal cliff."

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