‘Tax-mageddon’ Poses Enormous Risk
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U.S. Sen. Kay Bailey HutchisonMay 11, 2012 | 1,933 views | 1 comment
Unless Congress and President Obama can reach agreement by the end of this year, steeply higher taxes -- amounting to about half a trillion dollars annually -- will slam the economy and most taxpayers, starting January 1, 2013. For starters, 25 million middle income taxpayers will be hit for the first time by the Alternative Minimum Tax (AMT).
This “Tax-mageddon” looms because the President and the Democrat majority in the Senate have for the past three years remained insistent on raising taxes. Congressional Republicans have fought to hold the line against higher taxes. But because the disagreement on tax policy so far is not reconciled, approximately one hundred tax cuts are set to expire at the end of this year and a half-dozen new taxes to pay for the Obama health law are set to take effect on January 1. Here is some of what’s in store:
· Alternative Minimum Tax. As indicated above, 25 million more middle income taxpayers will be hit in 2013 with an estimated $118 billion in higher taxes. (Note: the AMT was enacted in 1969 to ensure that a couple of hundred millionaires would pay their “fair share.”). For instance, currently the exemptions are $48,450 for individuals and $74,450 for married couples filing jointly. If Congress fails to enact relief by the end of this year, the exemptions will return to $33,750 for individuals and $45,000 for married couples filing jointly.
· Deduction of state and local taxes. The deductibility expired at the end of 2011. It was put in place with amendments offered by Congressman Kevin Brady and myself. Because Texans aren’t saddled with a state income tax, loss of the sales tax deduction will be particularly costly for Texas taxpayers.
· Marriage penalty. I sponsored S. 11, the Marriage Penalty Relief Act of 2011, which addressed the perverse tax penalty on married couples. But the previous income tax penalty on marriage is set to kick in again for 2013, if we can’t extend it.
· Child tax credit. The credit will be halved from $1000 to $500 for 2013.
· Estate taxes. The so-called “death tax” reverts to a 55 percent rate in January of next year with a $1 million exemption. Many of America’s family-owned small businesses will be hit hard by this tax hike.
· Investment and Job Creation: Capital gains will increase to 20 percent, and dividends will be taxed at ordinary income tax rates. Specifically for those individuals and couples earning more than $200,000 and $250,000 respectively, two new healthcare reform surtaxes will force the capital gains and dividends tax rates even higher: capital gains to 23.8 percent and dividends to 43.4 percent. Raising capital gains and dividends tax rates will drain away critical private investment capital that entrepreneurs and startup businesses need to expand their enterprises and create jobs.
Also set to take effect in 2013 are a half-dozen new taxes that were enacted in 2009 to pay for the Obama Health Care Law. These taxes will increase taxes on affected small businesses, drive up costs of medicines and health insurance, and jeopardize job-based health insurance coverage for millions of working Americans and their families. (Note: The Supreme Court is expected to rule on ObamaCare’s constitutionality in June or July.)
The risk of inaction on these tax issues for our economy and our country is enormous. If you’re employed, you will pay more in taxes in 2013. If you’re unemployed, it will be harder to find a job. If you run a business, it will be harder to stay in business, much less hire more people.
Notwithstanding the truly catastrophic economic consequences, there has been a conspicuous lack of urgency from the President and Congressional Democrats about addressing these tax increases. The strategy at the White House seems to be: (1) do nothing until after the November election; and (2) blame a government shutdown and economic meltdown on Congress if it doesn’t approve higher taxes before the end of 2012.
Speaker of the House John Boehner has wisely indicated that the House of Representatives will vote before the November elections to extend all of the current tax rates, credits, and deductions that are set to expire at the end of the year. Waiting until the last minute, as was done in 2010, is not a responsible way to govern. At best, delaying tax policy decisions puts businesses’ and families’ financial decisions on hold -- which is also bad for our weak economy.
A simpler, fairer income tax system, based on lower, flatter rates, would turbo-charge economic growth and private sector job creation. The alternative is more of the same turmoil that has pushed the national debt above $16 trillion and is keeping unemployment above 8 percent.
The right thing to do for our country is to call a truce in the election year political games. But we shouldn’t just stop at preventing the end-of-the-year Tax-mageddon. The President and Congress should put comprehensive, pro-growth reform of the entire tax code at the top of the legislative agenda for this summer.
Hutchison, a Republican, is the senior U.S. senator from Texas.