If Congress and the White House can’t agree before the end of the year on how to prevent a fiscal cliff crisis, middle-class families will be shocked by the size of their 2012 tax bill. The Washington Post’s Lori Montgomery reports that among the slew of tax increases or expiring tax cuts set to take effect in early January is the Alternative Minimum Tax, or AMT, that will hit middle-income taxpayers as well as wealthier Americans.
The AMT was originally created to make sure the rich couldn’t escape paying at least some income taxes. But unless Congress blocks it, the AMT will boost the average 2012 tax bill by $3,700 for more than 26 million middle-income earners. Unlike other tax hikes set for next year, the AMT bill would come due almost immediately and would be very difficult to fix or retract after the 2012 tax year ends on Dec. 31, according to the IRS.
Typically, the AMT is adjusted for inflation and targets 4 to 5 million taxpayers with annual incomes of between $200,000 and $1 million. This year, however, the inflation patch that prevented millions of people from being pushed into a higher tax bracket and having to pay the AMT is expiring, and without another extension, millions of middle class taxpayers will feel the pain. – Read more at the Washington Post
BAUCUS: OBAMA HAS A PLAN FOR THE CLIFF Senate Finance Committee Chairman Max Baucus, D-Mont., told Politico’s Manu Raju that he expects President Obama to lay out a “balanced” plan to avert the fiscal cliff and drive the lame-duck session deficit talks. Baucus essentially was expanding on what the president told the Des Moines Register two weeks ago – that he was “absolutely confident” he could negotiate a “grand bargain” with GOP and Democratic congressional leaders. "I expect that the president, soon after the election, is going to make a proposal to the Congress that’s balanced, got some spending cuts and some revenue-raisers, and it’s not too draconian because we can’t stifle the economic growth that we’re moving toward, that’s being maintained,” Baucus said. “At the same time, we’re getting that debt down.” - Read more at Politico
BOEHNER DOWN ON LAME DUCK SESSION House Speaker John Boehner, R-Ohio, tried to douse the president’s confidence that a major deficit reduction and tax deal could be pulled together shortly after the election. Boehner told CNN on Sunday that the best that could be hoped for during the lame duck session is a temporary fix to postpone the scheduled deep cuts in defense spending and blocking the expiration of the Bush era income tax cuts. Even a temporary fix will be difficult to pass, he added.
"Lame duck Congresses aren’t known for doing big things and probably shouldn’t do big things, so I think the best you can hope for is a bridge,” Boehner said. - Read more at CNN
CLIFF, WHAT CLIFF? The election does not give a mandate on how to compromise and resolve the fiscal cliff. Given the extreme negative tenor of the campaign, the losers may believe they lost not on the merit of their positions, but because their opponent was a more effective mudslinger. This does not bode well for the lame-duck session that extends into January.
The cliff has been virtually forgotten in the election campaign. In the six hours of Presidential and Vice Presidential debates it was only briefly mentioned once. Meanwhile the gap on many issues has widened. Both sides have hardened their positions on taxes: President Obama has made tax increases on the wealthy a centerpiece of his budget plan, while Republicans have been equally adamant that taxes should not go up for “job creators.”
The divide on nondefense spending has widened as House budgets have called for even deeper cuts than under the sequester. Democrats initially seemed ready to give up on another payroll tax cut extension, but recent press reports suggest it is back on the table. The cost of Hurricane Sandy may prompt another debate about whether funding for FEMA should be offset by cuts elsewhere. Read more at Bank of America/Merrill Lynch