DECEMBER 2012 AND ‘TAXMAGEDDON’: December 2012 marks the end of a cycle of the Mayan calendar which some say may result in a possible Armageddon; but even the Mayans couldn’t have predicted the coming “taxmageddon” that will occur if the government doesn’t act on a number of tax hikes and spending cuts before the end of the year.
December 2012 may be a very busy month for lawmakers on Capitol Hill as Congress will be facing some of the biggest fiscal decisions it may ever make. Ominously labeled “taxmageddon,” a host of tax cuts and breaks, including the Bush tax cuts, will all expire at the end of the year. At stake are billions of dollars in fiscal decisions to be handled potentially by a lame-duck Congress during the short weeks between the November election and New Year’s Eve. If handled poorly, the fragile economic recovery could be in jeopardy and Americans could be facing the largest tax hike in the nation’s history.
Could anyone have predicted that at the end of 2012 all of the special tax breaks, all of the Bush tax cuts, the payroll tax holiday for workers, the alternative minimum tax (AMT) “patch,” the unemployment benefits extension, and even the Medicare “doc fix” would all expire at the same time that the debt ceiling would need to be raised again—making it more likely that the lame-duck Congress would doom an already fragile economic recovery? Is it all just coincidence?
The potential economic firestorm that is programmed to hit in January 2013 could spell disaster for the middle class and small businesses. It appears unlikely that Congress will suddenly be able to agree to a deal over spending cuts and tax increases when they have not been able to reach one over the past several years. And with both parties wanting to run on tax policy in this election, an early resolution isn’t expected. The most likely scenario will be that they “pass the bucks,” literally billions of them, into the hands of the new Congress.
Many of these tax breaks have been on a “permanent-temporary” basis, like the AMT, which is “patched” yearly to avoid a large middle-class tax increase. Those in favor of continuing the system of “temporary” extensions argue that it allows for regular congressional review. Those in favor of making these breaks permanent, however, argue that no real review process occurs, and that many of these breaks are treated as if they are permanent already, and delaying their extensions weakens them. “If these provisions are never allowed to lapse, as past history would suggest, the practice of proposing short-term extensions with an expectation they will be renewed again substantially understates their true long-run budgetary cost.”
Regardless, if nothing happens between now and the end of December, it could mean an almost immediate recession, with Americans facing the largest tax hike in history, some $500 billion per year. The situation is tenuous, and the budget hole continues to deepen. Meanwhile, both parties continue talking past one another and the differences seem irreconcilable…feeding the “taxmageddon” beast.
With America hanging on the edge of a very deep fiscal abyss, wouldn’t it be great if Congress actually did something to serve “We the People” and put party differences aside to enact some sort of comprehensive reform? It would take a lot of political courage, but the rewards would benefit all of us. Is it likely? Probably not. Meanwhile, “taxmageddon” looms large on the horizon, and those tasked with dealing with it are yet unwilling “to kill the beast.” Maybe those “doomsday” prophecies aren’t that far out after all!
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