Remember Carmageddon ? This was the closure of the 405 freeway in Los Angeles that was supposed to lead to unprecedented problems? How about snowmageddon ? The epic size snowstorms that got their name in 2010 and led to a lot of snow but far less than the apocalyptic event that some believed would happen.
There’s a new “mageddon” making its way through Washington and this time, the fallout could be huge. It could stall the economic recovery and cost the country as much as $500 billion in lost economic activity in 2013 if the full effects come to pass. The mageddon is Taxmageddon and there’s no doubt that it’s something for Washington to worry about, especially in an election year.
What is Taxmageddon?
Taxmageddon is what would happen if the tax extensions that Congress has approved as well as other lesser known tax breaks expire on December 31st. First, the Bush-era tax cuts, which define our current tax brackets , which cut the tax rates on investment, estate, and gift taxes, are set to expire on that date. Additionally, the marriage penalty for joint filers will once again be a reality and the child credit would drop to $500 from $1,000 where it is today.
According to The Washington Post , the rate that Americans pay on their first $8,700 of income will go to 15% from 10%, and the Social Security tax will rise to 6.2% from 4.2% and for higher income individuals, the Medicare taxes enacted for Obama care will become a reality.
Finally, Congress has passed a series of patches that keep the alternative minimum tax from striking an even larger amount of middle income earners. Many have called for a large scale reform of the alternative minimum tax but that doesn’t seem likely which would necessitate another patch being passed in a Congress that has a shown an inability to get the smallest and least controversial matters passed.
Will it Happen?
The Obama Administration as well as congressional Republicans agree that such a substantial tax hike can’t take place but to what degree is likely to be the subject of a large Washington battle in starting in November following election season.
Obama has said that he will veto any bill that extends the Bush era tax cuts to the wealthiest 2% of Americans but Republicans, who have been against tax hikes for anybody, may have to agree to set this stance aside in order to pen a deal. 72% of Americans are in favor of higher taxes on the nation’s wealthiest giving the Democrats a stronger position going in to negotiations. Lawmakers agree that the national debt has to be brought under control but they also know that taking money out of Americans who are earning less than they once were, could have serious economic ramifications.
Most “mageddons” end up being much more subdued than the doomsday prophets would like us to believe and while the chances seem unlikely that Washington would risk the economic and political fallout that would occur if all of these tax hikes were allowed to take hold, most agree that taxes for at least the higher earning Americans will likely rise and even the middle class households may not enjoy the same breaks they’ve seen for years.