Tax Increases: In an Oct. 1 report on the fiscal cliff, the nonpartisan Tax Policy Center estimates that the scheduled tax increases, if allowed to take effect, would net an additional $536 billion in fiscal 2013. These are Bush-era tax cuts enacted in 2001 and 2003 and extended for two years at the end of 2010 $254 billion. Temporary tax breaks that were part of Obamas stimulus law and extended at the end of 2010 $27 billion. Congress has yet to act on short-term tax breaks, mostly for businesses $75 billion. A temporary payroll tax cut now set to expire at the end of this year $115 billion.
Tax increases contained in the Affordable Care Act on upper-income taxpayers will go into effect: a 3.8 percent tax on unearned income, 0.9 percent increase in Medicare payroll taxes and a higher income threshold for deducting medical expenses $24 billion.
The Alternative Minimum Tax, which was designed to make sure wealthy Americans pay a minimum tax 28 million more taxpayers will pay higher taxes $40 billion. Taxes would increase an average of $3,466 per household. Middle-income households those earning nearly $40,000 to about $64,500 a year would see an average increase of $1,984. Revenue increases over 10 years the Obama plan: allow the Bush tax cuts to expire for couples making over $250,000, increasing the totp tax rate from 35 to 39.6 percent, $442 billion; reduce the value of itemized deductions and other tax preferences to 28 percent for families with incomes over $250,000, $584 billion; increase capital gains tax rates from 15 percent to 20 percent, raising $36 billion; and increase taxes on dividends from 15 percent to 39.6 percent $206 billion.
The current estate tax exclusion ($5.1 million per-person) is scheduled to fall to $1 million. That would raise an estimated $31 billion in 2013. The long term tax rate on capital gains and dividends for taxpayers in the top four tax brackets is 15 percent. The capital gains rate is scheduled to increase to 20 percent for those taxpayers, while dividends would return to being taxed at regular income tax rates. Estimated impact: $8 billion.
As a percentage of the nations economy, the gap between what Washington spends (22.7 percent) and collects in revenues (15.7 percent) narrowed slightly in 2012. The federal government is still a long way from the times when revenues more closely matched spending. The federal government has run surpluses in 12 of 68 years most recently for a period of four straight years, beginning in 1998 under President Bill Clinton. Clinton increased taxes on those making more than $200,000, limited military spending, and had a 1-for-1 ratio between spending reductions and tax increases over a five-year period. The surpluses evaporated as the nation went through two wars and two recessions.
There has been no consensus plan yet proffered by Republicans, though last year the House passed a bill to extend the Bush tax cuts for everyone for another year. This would result in deficits over the 20142022 period, averaging about 5 percent of GDP rather than 1 percent. Revenues would remain below 19 percent of GDP throughout that period, and outlays would rise to more than 24 percent. Debt held by the public would climb to 90 percent of GDP by 2022higher than at any time since shortly after World War II. One option not being considered is doing nothing thus allowing the spending cuts and the tax increases to take effect. Under that scenario the CBO projects that the nation will most likely slide into a recession and the unemployment rate, which was 7.9 percent in October, would rise to 9.1 percent.