A new report released Monday by the independent Tax Policy Center (TPC) warned that huge tax increases are in the midst of middle- and high-income households if legislators in Washington do not renew a large number of tax cuts that are scheduled to expire at the end of the year.
According to the report titled “Toppling Off the Fiscal Cliff: Whose Taxes and How Much?”, the typical middle-income family earning between $40,000 and $64,000 annually could see their taxes rise by $2,000 in 2013. A household generating an annual salary of between $110,000 and $140,000 could possibly see a tax increase of $6,000. The top one percent of the United States may receive a tax bill of an additional $120,000.
Low-income households would be also affected by the tax credits put into place by the 2009 economic stimulus plan by President Barack Obama.
For most of American households, the two biggest increases would be the provisional reduction in Social Security taxes and the cessation of the 2001/2003 tax cuts.
In total, nine out of 10 households would be affected if the Bush tax cuts are not renewed. The increase in taxes would equal more than $500 billion, or 20 percent. This accounts to on average $3,500 per household.
Economists are warning that if the tax increases take place as of Jan. 1, 2013 and the automatic spending increases of $109 billion go into effect, the U.S., which has been undergoing a very slow recovery, could head back into a recession. Thus, the report authors are calling it a “fiscal cliff.”
“The United States is fast approaching what many observers call the ‘fiscal cliff’. If the president and Congress do not act, taxes would jump for most Americans and government spending would drop sharply,” wrote authors Jeff Rohaly and Joe Rosenberg.
“Those changes would reduce the federal deficit significantly in 2013 and subsequent years, slowing America’s build-up of debt and reducing the debt as a share of gross domestic product. But the resulting macroeconomic tightening could well push the country back into recession in 2013.”
President Barack Obama and Republican presidential candidate Mitt Romney have been mum on the expiring tax cuts.
According to the president’s plan, the federal government would implement a permanent rate on individuals earning more than $200,000. Also, families maintaining an income of more than $250,000 would go back to a rate of 39.6 percent, which was championed during the administration of President Bill Clinton.
The Associated Press is reporting that very few congressional officials are talking about renewing the president’s two percent payroll tax cut.
The former Massachusetts Governor has put forward a plan that would make 20 percent cut on marginal rates across-the-board, eliminate the death tax, repeal the Alternative Minimum Tax (AMT), eliminate taxes for taxpayers with AGI below $200,000 on dividends, interest and capital gains and maintain current rates for interest, capital gains and dividends.
It was noted a couple of days before the first presidential debate that Romney’s plan to balance the budget within eight to 10 years – or Paul Ryan’s plan, which would balance the budget in three decades – doesn’t add up. The reason why analysts do not believe Romney’s plan is feasible is because he proposes increasing Pentagon spending, refusing to increase taxes and restoring cuts that Democrats put forth in Medicare.
As a matter of fact, according to a preliminary analysis in February by the independent Committee for a Responsible Federal Budget, the only presidential candidate that had a plan to balance the budget was retiring Texas Republican Congressman Ron Paul, who introduced a budget proposal that would cut spending by $1 trillion in his first year.
Former House Speaker Newt Gingrich, Former Pennsylvania Senator Rick Santorum and Romney would all add to the budget deficit and national debt over the next decade.