At midnight on Dec. 31, 2012, the terms of the Budget Control Act of 2011 are set to go into effect, commonly referred to as the "fiscal cliff," kicking in a reported $607 billion in automatic annual tax increases and spending cuts. This means that certain tax cuts will end, increasing costs for taxpayers and businesses. For example, the end of the temporary payroll tax cuts will result in a 2 percent tax increase for workers. In addition, spending cuts agreed to in 2011 will also go into effect.
Why is it such a concern? Because the policies slated to begin in January 2013 include measures that will hamper economic growth and possibly drive us back into a recession. Unfortunately, right now, few options exist as the Budget Control Act of 2011 is law.
* Let these policies stand, risking further economic decline.
* Minimize the impacts by canceling all or portions of the tax increases and spending cuts, although this would add to our national deficit.
* Or, come together on new solutions, given current realities, that would lessen the negative impacts and spur economic growth.
This is not a new challenge and the negative economic impacts of this legislation have been widely recognized for some time. Yet, lawmakers are still stuck in political gridlock as we wait on the sidelines for solutions.
This past Wednesday, CBS News reported that "Fiscal cliff talks frozen, Obama lobbies big business." It reported that "there's little reason to believe a deal is in the works." This as Dec. 31 nears. Many predict Congress will hold out until the eleventh hour before solutions are reached.
If you are wondering how the fiscal cliff will impact your life, you can find numerous Web-based calculators to help you figure it out, including a simple and easy calculator to use at creditcards.com. On the website, it says that "Americans will see a steep jump in their tax bills starting in January 2013 unless lawmakers reach an agreement to soften the impact of expiring tax breaks."
Based on an analysis of tax rates by the Tax Policy Center, the calculator computes a combined bill for federal income and Social Security taxes. It can be found at: //www.creditcards.com/credit-card-news/fiscal_cliff-calculator-1701.php. Just plug in your income, exemptions and filing status and it will estimate the impact the fiscal cliff will have on your financial situation, comparing taxes under the current law with the fiscal cliff.
According to this calculator, an individual making $40,000 a year filing head of household with two exemptions will see his or her taxes go up by $1,435. A married couple filing jointly making $80,000 and claiming two exemptions would see their tax bill go up by $3,017.
It reports that "those at the higher end of the income scale will face the biggest tax hikes under the 'fiscal cliff' scenario in dollar terms, but many lower-income earners will see larger percentage increases."
Another calculator by the Tax Foundation, which informs Americans about the size of tax burdens and provides economically principled analysis of tax policy issues, can be found at interactive.taxfoundation.org/taxcalc/#calculator. This calculator is for those who want to examine the fiscal cliff from various angles. It will show you how you will fare under three different fiscal cliff scenarios and is a more in-depth calculator for those who want to explore numerous options.
Take a look at your personal situation and decide how you feel about paying considerably more in taxes.
Whether you are comfortable paying more or not, remember this is just the tip of the iceberg. Beyond the immediate fiscal cliff challenge, we still have to solve the real problem - our massive and growing debt.
* Pamela Tumpap is president of the Maui Chamber of Commerce.