Monday, December 24, 2012

Low- and Moderate-Income Taxpayers to Face Biggest Burden if U.S. Goes Over Fiscal Cliff

Here's an excellent Fox & Friends segment from over the weekend, especially the second half, "If Bush Tax Cuts Expire - What Would It Mean For Your Taxes?"

And at the Wall Street Journal, "Cliff Would Strike Low Incomes Hard":
If the U.S. goes over the "fiscal cliff," some Americans may fall harder than others.

The biggest impact in sheer dollars would land on relatively affluent households, particularly when it comes to the tax increases that make up the bulk of the cliff. But in terms of percentage of tax increases, low- and moderate-income taxpayers will face the biggest burden—an often overlooked part of the budget debate that's now getting attention as the year-end deadline nears.

Households earning $10,000 to $20,000 would see a large increase in their overall federal tax burdens, from an average of $68 to $605. The blow would be especially harsh for married couples and households with children. The fiscal cliff "clobbers low-income households with children," said Roberton Williams, a senior fellow at the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute. "It is striking how large some of the increases are."

A household that makes between $10,000 and $20,000 in income and has a child would get a $2,761 payment from the Internal Revenue Service under current rules, thanks to various tax breaks and credits. After the cliff, that would be cut by $1,324, or about half.

Married couples earning $20,000 to $30,000 today would get an average $15 payment from the IRS under current rules. In January, they would owe an average $1,408 to the IRS, because several of those breaks would be narrowed or eliminated.

Budget talks were mostly quiet Sunday, officials on both sides said, after a week when efforts between President Barack Obama and House Speaker John Boehner (R., Ohio) to cut a deal collapsed, and the House failed to pass a backup plan.

Some leaders, including Mr. Obama and Senate Majority Leader Harry Reid (D., Nev.), attended a memorial service for the late Sen. Daniel Inouye in Honolulu. Mr. Obama said he would cut his holiday vacation short and return to Washington this week to work on an agreement.

The so-called fiscal cliff comprises about $500 billion in tax-break expirations and government spending cuts that are set to take effect in early January, unless Congress acts. With little more than a week to find a solution, Democrats and Republicans are focusing on the real-world impacts of the fiscal cliff and seeking to shift blame for it.

"We're taking…this incredible mallet and [are] about to smash America," Newark's Democratic Mayor Cory Booker said Sunday on ABC's "This Week." "People are going to be cut out of programs that support the poorest Americans….This is really what bothers me right now."

Don Stewart, a spokesman for Senate GOP Leader Mitch McConnell (R., Ky.), said on Sunday: "Given the impact on all segments of the economy, it's disappointing that Democrats are so cavalier about letting the country go off the cliff."

The Obama administration contends Republicans would let much of the fiscal cliff's impact happen for moderate-income families, by allowing Obama-era breaks to expire.

If Congress misses its year-end deadline but quickly restores the expired tax breaks, the tax impact on lower-income households could be modest.

One problem, however, might be unavoidable: a delay in sending tax-refund payments that normally arrive between late January and March. The IRS already has warned lawmakers it might have to postpone the tax-filing season by several weeks, possibly for everyone.

Much of the tax debate has focused on upper-income Americans, who will likely see taxes rise in some form next year. If no budget deal is reached, households making more than $100,000 would absorb more than 50% of the total tax increase, according to an analysis by the Tax Policy Center. And those earning more than $1 million would see their taxes rise by an average 24%, from about $1.1 million to about $1.3 million.

At the other end of the income scale, the risk comes from the expiration of less-heralded parts of the Bush-era tax code, as well as Obama changes that expanded several breaks for lower- and middle-income households.

About two million people also face the prospect of losing unemployment checks starting in January, with the expiration of extended federal unemployment benefits. "For the long-term unemployed, their entire income may disappear," said Robert Greenstein, executive director of the liberal Center on Budget and Policy Priorities.
See also, "How 'Cliff' Talks Hit the Wall: Behind Scenes, Boehner Failed to Sell Republicans on Taxes, While Obama's Spending Plans Rankled."

Obama's ball-busting budgeting. And I'll tell you, the Republicans aren't coming out too pretty here either. That video at top says the average tax hit for incomes over $108,000 would be more than $14,000. The liability would be enormous especially for people making over $1 million (around $100,000), but still. The bill comes due in April, as we're talking about the 2012 tax filings that will be affected, unless the IRS is able to reset the deadline. I doubt there'd be a better impetus to a new American tax revolt than going over the cliff, but perhaps an agreement will come at the 11th hour. We'll see.