The largest tax hike in history is due to strike the United States on January 1, 2013. Known as “Taxmageddon,” it would impose $494 billion in higher taxes on the American people in the first year. So terrible would be its impact that yesterday Fed Chairman Ben Bernanke warned Senate Democrats that the country is headed toward a “fiscal cliff” and that Congress must deal with the impending tax nightmare.

On Wednesday, House Speaker John Boehner (R-OH) announced that his chamber will take up the issue before the November election. Knowing Washington’s general reluctance to do anything of substance in an election year, Boehner’s announcement was welcome news given the disastrous ramifications the threat of such a massive tax hike is already having on the economy. That’s according to Mohammed El-Erian, CEO of Pimco, the world’s largest bond trading firm. El-Erian argues a “prolonged political inaction is likely to postpone building plants and purchasing equipment and to discourage them from hiring.” And that is only an inkling of the blow that would strike the economy if these tax hikes actually took effect.

How could nearly half a trillion dollars in higher taxes hit the American people so fast? What hath prior Congresses wrought? Heritage’s Curtis Dubay explains that the tax hikes come from a series of expiring tax cuts and the imposition of even more new taxes. And Heritage’s J.D. Foster writes that Americans can expect to see the following tax consequences starting next year:

- Income tax rates shoot up,
- The child credit is cut in half,
- The marriage penalty roars back,
- The capital gains tax rate goes up,
- The dividend tax rate soars,
- The payroll tax rate jumps two percentage points,
- The death tax is restored to its punitive past,
- The Alternative Minimum Tax relief expires, and
- A uniquely pernicious additional payroll tax hike from Obamacare takes effect.

Taxmageddon not the only tax problem. A consensus is coalescing in favor of fundamental tax reform, and many members of Congress understandably want real progress. Fortunately, there’s a solution if Congress gets its act together and decides to take action. Foster writes that solving America’s tax problem should be a simple two-step process:

Step 1) Prevent Taxmageddon. If Congress doesn’t act, Foster says, “The effects on families and businesses would be devastating; the effects on the economy no less so. Congress should make current tax policy permanent and eliminate, once and for all, this cavalcade of tax hikes.” Washington should take action before the election and before the tax hikes hit in order to bring more certainty to the economy and give taxpayers much-needed relief. Taxmageddon is anti-tax reform, a big step in the wrong direction.

Step 2) Usher in true tax reform. America’s tax code inhibits growth and bedevils taxpayers with its maddening complexity. Having prevented a big step in the wrong direction with Taxmageddon, Congress should then lower marginal tax rates and eliminate taxes on saving and investment while eliminating the many ill-advised deductions, exemptions, and credits that distort the economy and clutter the tax code. Foster points to Heritage’s New Flat Tax, contained in the Saving the American Dream Plan, as the best way to simplify the tax code, make it more fair, and encourage the kind of economic recovery America needs.

Speaker Boehner warned that if Congress does not take action soon, “We’re going to have this mess all stacked up until after the election. And you want to talk about a train wreck? You’re talking about a big one.” He’s right. The American people can’t afford the $494 billion Taxmageddon train wreck, and the time is ripe this summer for Congress to do something to prevent it.

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