What is the 2013 Tax Increase: Everything You Need to Know About Taxmageddon
My first phone call the morning after the election was from Robo Rachel. Her spiel goes something like this: "Hello, this is Rachel from cardholder services. I am calling with an important message about your credit..." Her offer is to lower the interest rate on my nonexistent credit card debt. We've spoken before.
This time, I screamed at her, "Call the White House!" Naturally, I received no answer. Robo Rachel probably did not understand my frustration, nor did she call the White House. But what about the national debt, the fiscal cliff?
What is it all about? Gridlock. Congress and the Obama administration cannot agree on reducing the deficit, reforming our tax code, taxes and even immigration. Even my dog is worried about losing his biscuits!
Massive defense cuts, cuts to social programs and tax hikes will take effect in January of 2013. The term "fiscal cliff" was coined by Federal Reserve Chairman Ben Bernake to refer to these taxes and cuts, which are due to the inability of Congress and the White House to agree on how to address the deficit spending problem, a problem which has created a national debt in excess of $16 trillion. Beginning on January 1, the Budget Control Act of 2011 will impose massive spending cuts.
The possible options, which each have disputed advantages and disadvantages, are as follows:
Allow the spending cuts and tax hikes to go into effect. Cancel some or all of the tax increases and spending cuts. Address the budget issues.
Here's everything you need to know about the fiscal cliff.
Can Congress and the president come to an agreement?
"I remain optimistic that we are going to be able to find common ground," said House Speaker John Boehner to ABC's Diane Sawyer. Referring to President Obama, he said, "I am confident that he and I can find the common ground necessary."
What must Congress and the president do?
Act to address "the long-term imbalance between government spending and revenue, and to prevent a future debt-induced economic crisis," said Erskine Bowles, co-Chairman of the National Commission on Fiscal Responsibility and Reform and co-founder of the Fix the Debt Campaign. "We already have the blueprints" for an alternative plan, a bipartisan package, "large enough to put the debt on a clear downward path, relative to the economy, and designed well enough to promote, rather than disrupt, economic growth."
Perhaps most importantly, "it's a package on which bipartisan agreement is possible," he said. Bowles and Senator Alan Simpson founded the Campaign to Fix the Debt to "put America on a better fiscal and economic path." Bipartisan leaders from a variety of social, economic and political perspectives, share the common belief that "America's growing federal debt threatens our future and that we must address it."
When will it happen?
Congress returns on Tuesday. In an interview on Thursday, Speaker Boehner indicated he anticipated the lame duck Congress would vote on a short-term fix to delay the year-end "fiscal cliff."
"As Speaker, I feel pretty strongly that a lame-duck Congress shouldn't do big things," he said. Boehner expressed optimism that an agreement could be made between himself, Senate Majority Leader Harry Reid and President Obama. He proposes a "bridge" that would extend all of the tax rates for one year, allowing more time for an overhaul of the federal tax code. This "would increase revenue by closing tax loopholes, not by raising the rates individuals pay on their wages."
Boehner wants to protect defense programs that would be cut and find other budget items to sacrifice. Democrats want to raise taxes for Americans earning more than $250,000 from 35% to 39.6%. It remains to be seen how much can be accomplished.
Why should there be optimism about this finally being resolved?
Quite simply, because it is no longer an election year. The president doesn't have to worry about re-election, and members of Congress won't be up again before 2014 so can negotiate more freely. If they solve the problem and come up with a plan and an agreement, everyone wins. This is a great opportunity to put America back on the right fiscal track. President Obama is scheduled to make a statement about the economy from the White House on Friday afternoon.
In short, the dog can quit worrying about his biscuits, and we can get on with the business of rebuilding our economy, creating jobs and helping small businesses grow. It sounds great, but don't tell the dog that it's not likely that it will be solved as quickly as we would like.