Uncertainty over the expiring sections of the federal tax code known collectively as the “fiscal cliff” represents not only a threat to a prosperous and growing economy, but an abdication of leadership in Washington. The existence of an increasingly temporary tax code highlights the accumulated questions that Congress has refused to answer, according to a new guide to fiscal cliff provisions from the Tax Foundation.
In confronting the cliff, elected officials will need to start by asking big questions about how they want the tax code to work, including what the least economically destructive ways to raise revenue are, how high total spending should rise, and to what extent the code should be used to redistribute income. The present list of fiscal cliff elements will also require them to ask some more specific questions about the future of “Obamacare”, the estate tax, and the payroll tax.
“The huge potential impact of the fiscal cliff in scope, importance, and dollars is reflected in the anxiety felt by American taxpayers,” said Tax Foundation Chief Economist William McBride. “With so much of the tax and budget system on a short-term lease, and with the proposed permanent fixes so widely varying, economic growth suffers. While past practice suggests Washington will once again duct tape together another short-term extension and put off the hard choices, anything can happen.”
Among the expiring provisions are the 2001 and 2003 tax cuts enacted under President Bush, a compromise on the estate tax, a “patch” in the Alternative Minimum Tax (AMT), the temporary 2 percent payroll tax holiday, increased business expensing, and the “extenders” package of miscellaneous tax deductions.
In addition, on January 1, 2013, five taxes enacted as part of the Patient Protection and Affordable Care Act (PPACA)—popularly referred to as Obamacare—also take effect, along with sequester spending reductions of $109 billion. In late February, the U.S. government will also hit the current debt ceiling, exhausting its ability to borrow without an increase by Congress. Finally, the federal government’s continuing resolution appropriating spending expires on March 27, 2013.
Source: Tax Foundation