Seth Perlman, Associated Press
Warnings about the January 1, 2013, "fiscal cliff" are starting to pile up as Republicans seek to extend all the Bush-era tax cuts and Democrats push to extend the cuts for everyone except wealthier Americans.
Without Congressional action, all marginal individual tax rates increase, the capital gains tax rate increases, the dividend tax rate will increase, the death tax returns to its 2000 levels, the ATM patch ends, the marriage penalty relief expires, the child tax credit is halved and annual business "extenders" end, according to the U.S. Chamber of Commerce.
While both parties agree that the tax cuts ought to be extended, the two parties differ over letting the cuts expire for wealthier Americans.
On July 9, President Barack Obama called for Congress to extend the tax cuts for individuals with incomes below $250,000 per year. Also on July 9, White House press secretary Jay Carney said Obama would veto any bill that extended all the tax cuts, and in a recent speech at the Brookings Institute, Sen. Patty Murray, D-Wash., said Democrats would let all the tax cuts expire rather than renewing them for higher-income families.
"If we can't get a good deal, a balanced deal that calls on the wealthy to pay their fair share, then I will absolutely continue this debate into 2013 rather than lock in a long-term deal this year that throws middle class families under the bus," Murray said. "And I think my party and the American people will support that. I hope it doesn't come to that."
"Today, I told reporters that Rs are holding tax cuts for middle class hostage in order to give tax breaks to wealthiest 2%," House Whip Steny Hoyer tweeted Tuesday.
Raising taxes under Obama's plan would hit about 2.5 percent of businesses, but that the 2.5 percent encompasses 894,000 small businesses, reports suggest.
"Most Americans understand that if we raise taxes on job creators, we're going to have fewer jobs," House Speaker John Boehner, R-Ohio, said. "Our economy is still struggling under President Obama's policies, and his massive tax hike will only make things tougher. It's one of the worst possible ideas at one of the worst possible times for families and small business."
"Democrats in Congress are now saying that they would rather see taxes go up on every American at the end of the year than let about a million business keep what they earn now," Sen. Mitch McConnell, R-Ken., said. "This isn't an economic agenda. It's an ideological crusade."
Federal Reserve Chairman Ben Bernanke warned Congress Tuesday that allowing the "fiscal cliff" in the form of tax increases and spending cuts would have "major negative effects on the recovery."
A new Ernst & Young analysis looked at the impact of coming tax increases on the top tax tier, including the rise accompanying the expiration of the Bush-era tax rates, the reinstatement of the limitation on itemized deduction, the taxation of dividends as ordinary income, an increase in the top tax rate applied to capital gains and additional tax increases tied to the health care overhaul.
The combination of these tax changes would put the top tax rate on ordinary income at 40.9 percent, up from 35 percent. The top tax rate on dividends will rise from 15 percent to 44.7 percent and the top tax rate on capital gains will rise from 15 percent to 24.7 percent. The report states that these higher rates will "result in a smaller economy, fewer jobs, les investment and lower wages."
The report goes on to say that output in the long-run would fall by about $200 billion in today's economy, and the economy would have 710,000 fewer jobs. The estimate for Utah shows an output of -1.7 billion and -6,500 jobs. The report also suggests that employers would be forced to trim wages by 1.8 percent. In total, the fiscal changes would reduce the federal budget deficit by $774 billion in 2013.
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