With a Fiscal Cliff Looming
Kranacher, Mary-Jo, The CPA Journal
The Future Ain't What It Used to Be
As the end of the year approaches, we are reminded mat tax increases and mandated federal spending cuts are scheduled to take effect on January 1, 2013, unless U.S. policymakers can successfully find a nonpartisan solution to avoid this looming "fiscal cliff." On the upside, the fiscal cliff will achieve deficit reduction, but at the price of potentially pushing our already weak economy back into recession. This obviously isn't a sound way for our nation to achieve its objective of fiscal responsibility.
To accomplish the goal of reducing annual federal deficits, and ultimately whittle away at the national debt, a combination of increased revenues and spending cuts is necessary. So far, however, political gridlock has provided the excuse to simply kick the can down the road and avoid making tough choices. The result is a poorly timed compromise mat satisfies no one.
According to the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution (http://www. taxpohcycenter.org), taxes will increase by approximately 20% ($500 billion) in 2013, absent any action by legislators. On average, middle-income households will pay almost $2,000 more. There are several reasons for these tax increases, but the major culprits are the expiration of Bush-era tax cuts, termination of stimulus credits, resumption of the full (6.2%) Social Security payroll tax, expansion of the alternative minimum tax (AMT), and new taxes resulting from the 2010 healthcare legislation - the Patient Protection and Affordable Care Act (P.L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (P.L. 111152). Many of the tax cuts that will expire on January 1, 2013, were originally intended to be temporary measures to spur economic growth at the time they were enacted, but the patches to address the AMT' s creep into middle-income tax brackets were a stopgap until more complete tax reform could be introduced.
In the hundred years since the U.S. income tax was first enacted, only a handful of major reforms have taken place. Incremental and temporary changes made over the years have contributed to the high degree of complexity and uncertainty in our tax code regarding individual income taxes, corporate taxes, estate taxes, and payroll taxes. …