Yesterday was nail-biting time in Washington. Well into the night, the outcome was unclear. But the Redskins finally pulled out a victory, beating the Cowboys 28-18 and securing a home playoff game for what seemed the first time in ages, or at least since Congress last reached a meaningful bipartisan agreement.
There was, of course, no such drama surrounding the second most important story yesterday in the nation's capital. Despite the appearance of doing the public's business, including a rare Sunday session, Congress still could not agree on even a minimal spending and tax package. Fiscal cliff, here we come!
Talks and compromise proposals reportedly continued late into the evening, and Congressional leaders held out hope they actually would vote on something Monday. Maybe it's their version of a New Year's resolution. Until that happens, here is the impressively negative list of the automatic tax increases and spending cuts that otherwise will begin kicking in on Jan. 1, 2013. Left unattended, these changes would raise the typical family's tax bill by nearly $3,500 next year and, it's widely forecast, send the national economy back into a recession.
Sequestration. Federal spending will automatically be cut by roughly $1 trillion over the next 10 years, with 2013 cuts totaling a bit under $100 billion. Depending on the agency, cuts range from about 7.5 percent to 9.5 percent, although Medicare would be cut by only 2 percent and low-income benefits would be spared. Fully half of them are set to come in defense spending.
Bush tax cuts. Rates on income taxes, capital gains, and dividends will all rise, affecting every taxpayer. The lowest tax bracket would rise from 10 to 15 percent. The next three brackets—now 25, 28, and 33 percent—would each rise 3 percentage points. The highest bracket would go from 35 percent to 39.6 percent. The tax rate on capital gains (for investments owned for a year or more) would rise to 20 percent from 15 percent. And income from dividends would be taxed as ordinary income instead of its current rate of 15 percent.
Estate taxes. This year's very generous rules on estate taxes all disappear. The current exclusion of roughly $5.1 million (double that for couples) and a tax rate of 35 percent on additional estate values will change to only a $1 million exclusion and a rate of 55 percent.
Unemployment benefits. More than two million persons who've been unemployed for a long time are scheduled to lose their extended unemployment benefits. The fiscal cliff truly is an equal-opportunity blow to the gut.
The Alternative Minimum Tax. The AMT was aimed at preventing wealthier taxpayers from using deductions and other tax benefits to escape their fair share of taxes. However, the qualifying income levels were not indexed for inflation. Congress has thus had to enact an AMT "patch" each year to help millions of taxpayers avoid extra taxes Congress never intended for them to pay. There is now no patch in place for 2012 income taxes. That's right: the taxes that are due on this year's income. Even if Congress does something soon, tax-filing season likely will be delayed. If Congress does not approve a patch, the number of taxpayers hit by AMT payments will rise from 4 million to an estimated 32 to 34 million.
The doc fix. In a 1997 law, Congress tied Medicare's payments to physicians to the growth of the economy. Medicare cost increases, including physician expenses, regularly exceed overall economic growth. Under the law, Medicare payments to physicians would have to be cut each year were it not for periodic Congressional action to override the cuts. Without another fix, doctors will see a 27 percent cut in their Medicare payments next year, and an unknown number of them would stop taking Medicare patients.
Payroll taxes. Extending payroll tax cuts reportedly was never a high priority. So, Social Security taxes will rise by 2 percentage points of covered wages, ending a two-year stimulus program that has by all accounts been a very effective support for lower-income and middle-income working Americans.
Lastly, what would a Congressional impasse be without once again threatening the nation's credit rating? Sure enough, federal deficits have brought us up against the debt ceiling. The Treasury Department says it will soon resort to its all-too-well-practiced financial shell games (all legal, of course) to put off the day of reckoning for several weeks.