Before President Barack Obama’s second term, he has some crucial business with the “lame-duck” session of Congress.
Because of temporary tax cuts, previous budget deals and procrastination in dealing with the debt, the country now faces a “fiscal cliff” on New Year’s Day. The stakes are high. All working households are scheduled to pay more taxes. And a feeble labor market and a macro economy are bracing for the impact of much higher taxes and, perhaps, reduced government spending.
The key factors are the Budget Control Act of 2011 and the scheduled end of a handful of tax cuts. The act lays out automatic budget cuts to be split between military and domestic spending: $55 billion in both categories. This would result in a 9 percent cut to the Pentagon and an 8 percent cut in domestic programs — but only when compared with their regularly scheduled increases.
The tax increases would be much larger: about $500 billion overall or what the Urban Institute’s Tax Policy Center estimates to be $3,500 per household on average and $2,000 for “middle income” households.
About $156 billion of this is the expiration of the Bush-Obama income tax cuts — a big hit for the half of households who pay federal “income taxes.” Marginal tax rates would increase across the board — from 10 percent to 15 percent on the lowest end and 35 percent to 39.6 percent on the highest end. The child tax credit would be reduced from $1,000 to $500 per child and no longer would be refundable.