It will be up to Washington to save the country from what the Washington Post has dubbed “Taxmageddon” — the looming tax increase set to hit Americans on Jan. 1.
Curtis Dubay, a senior analyst in Tax Policy at the Heritage Foundation, has chronicled the taxes set to hit if Congress and the administration do not make adjustments.
According to Dubay, Americans will see a $494 billion tax increase at the beginning of 2013.
“[The tax increase] is hitting because of expiring tax policies and the beginning of five taxes in Obamacare,” Dubay told The Daily Caller.
Dubay’s study of the looming $494 billion tax increase highlights the policies set to expire. These include the Bush tax cuts, the payroll tax cut, the Alternative Minimum Tax (AMT) patch, the tax cuts in the 2009 stimulus, tax extenders, the estate tax adjustment, and 100 percent business investment expensing.
Additionally, Durbay points out, that five of the eighteen tax increases in Obamacare will begin next year.
“Seventy percent of the tax hike falls directly on middle and low income families,” Dubay said. “That might surprise some people because you’ve heard for the last 12 years that the Bush tax cuts were just tax cuts for the rich, which is simply not true.”
“Sixty percent of the tax cuts in the Bush tax cuts are direct cuts for middle and low income families,” he explained. “The payroll tax cut is a middle and low income family tax cut, and the AMT patch, the whole purpose of it is to prevent a tax hike on middle and low income families. So when you add it all up 70 percent of that [nearly] $500 billion figure is a direct tax increase on middle and low income families.”
Dubay added that the increases are just a part of the cost set to result if Congress and the administration do not deal with the coming changes.
“That is just the direct part,” he explained. “The rest of the taxes fall on job creators, businesses that pay their taxes under the individual tax code, investors, entrepreneurs, other businesses. So the indirect effect hit Americans at all income levels, including middle and low income because the economy will slow, job creation will slow, and wages will not grow as fast.”
Federal Reserve Chairman Ben Bernanke warned the House Financial Services Committee of the potential tax onslaught in February.
“Under current law, on Jan. 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases,” he said of the expiration of the Bush tax, the expiration of a payroll tax cut and $1.2 trillion in spending cuts, according to The Hill. “I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date.”
According to Dubay, Congress and the administration are likely to to delay dealing with the issue until after the election, which will cause uncertainty in the marketplace in the interim.
“The uncertainty caused by Taxmageddon is slowing the economy today. Businesses, families, investors have no idea what their tax rate is going to be in nine months. That is causing them to hold back on making decisions today,” he said, adding that businesses do not know whether to hire, investors do not know whether to invest and families cannot plan their short-term financial future because nobody knows what their taxes are going to be.
The Washington Post has reported that Mark Zandi, the chief economist for Moody’s Analytics, is predicting that “Taxmageddon,” in cahoots with debt deal spending cuts, will reduce economic growth by three percentage points.
Zandi was more sanguine, however, about the final outcome.
“My forecast is that tax rates are not going to rise for everyone on January 1, 2013,” he said.