Typical household would face an average increase of $3,700
President expected to act swiftly
By Lorie Hailey
Now that the election is finally over, the fiscal cliff clock is ticking louder than ever.
House Speaker John Boehner, R-Ohio, is scheduled to deliver a statement this afternoon on the need for a bipartisan deal to avoid jumping off the fiscal cliff, a combination of tax increases (including the expiration of the Bush-era tax cuts) and spending cuts that will go into effect in January.
Congress has eight weeks to come to an agreement. Boehner will argue that Republicans and Democrats must “take steps together,” according to a brief press release from his office.
The tax breaks that would end include the Bush tax cuts, middle class protection from the alternative minimum tax, and more than 50 “temporary” tax breaks for individuals and businesses. Without an extension, about 80 percent of Americans would see tax increases next year. A typical household would face an average increase of $3,700, according to the Tax Policy Center.
The tax increases and spending cuts could cause the U.S. to slide into a “significant recession,” according to the Congressional Budget Office, which estimates that the economy would shrink by 2.9 percent in the first half of 2013 and by 0.5 percent for the year.
In this election year, Congress has not been able to come to an agreement on how to brace the fiscal cliff. President Barack Obama, who signed a bill in 2010 to extend all of the Bush-era tax cuts until the end of 2012, earlier this year called for Congress to pass a one-year extension of cuts for people earning less than $250,000 a year, but not for the wealthiest Americans.
His proposal would maintain the current lower tax rates for families making up to $250,000 for another year, while allowing tax rates to return to 1990s levels for those earning more.
Republicans, however, had vowed to not raise taxes, period.
Tuesday’s election left the makeup of Congress pretty much the same, which means the same issues that divided the president and Congress still linger.
Jill Schlesinger, editor-at-large for CBS MoneyWatch, reported that Boehner says a lame duck Congress “probably shouldn’t do big things,” but “the best you can hope for is a bridge.
That bridge, she explained, could mean a short-term extension that would allow newly-elected lawmakers and the president to come to an agreement.
“The expiration of the 2001 and 2003 tax rates coupled with sequestration cuts in 2013 could very well drive our fragile economy back into a recession,” said the U.S Chamber of Commerce, which operates a website called “Fiscal Cliff Countdown.”
No piece of legislation before the U.S. Congress requires action more urgently than extending the tax cuts of 2001 and 2003, said R. Bruce Josten, executive vice president for government affairs at the U.S. Chamber. Failure to act, he wrote in an op-ed this summer, will deal a “devastating blow to our fragile economy by slowing growth and killing jobs — at the worst possible time.”
If the U.S. jumps off the fiscal cliff, the country will witness the largest single tax hike in U.S. history, Josten said, hitting American taxpayers with $400 billion in new taxes in the first year and $4.5 trillion over the next decade.
“Some leading economists project job losses between 300,000 and 2.9 million stemming from the tax hikes alone,” Josten said. “And if the indiscriminate automatic spending cuts take effect, some sectors will be hit hard with job losses — 1 million defense and manufacturing jobs are expected to be wiped out in just two years.”
The national unemployment rate likely would rise to more than 9 percent, the CBO estimates.
Schlesinger explains the tax cuts that are set to expire and the effect of the fiscal cliff for various earners. Read her column here.
Lorie Hailey can be reached at email@example.com.
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