Tax Day 2012: Taxmageddon on the Horizon
Curtis Dubay /
In a bit of scheduling serendipity, Tax Freedom Day—the day when Americans finally earn enough income to pay off the bill for all federal, state, and local taxes for the year—falls on April 17 this year. That also happens to be Tax Filing Day 2012.
Absent tax changes made by Congress, Tax Freedom Day moves earlier or later in the calendar from year to year based on the economy. If the economy is stronger, then more Americans are working and wages are rising. Larger incomes mean they pay more taxes and Tax Freedom day falls later in the year. The reverse happens when the economy is weak, as it is today.
Tax Freedom Day next year promises to be much later than April 17, but unfortunately not because of a strong economy, which even the Obama Administration is not predicting. No, Tax Freedom Day will be much later if Congress and President Obama fail to act promptly and prevent Taxmageddon from striking America’s families and small businesses.
Taxmageddon is a $494 billion tax hike. Not only would it push Tax Freedom Day much deeper into 2013, it would also make next year’s Tax Day considerably more painful than it was this year: American households would face an average tax increase of $3,800.
A big portion of the Taxmageddon increase would occur because tax cuts enacted more than a decade ago lowered all tax rates and put in place a new 10 percent bracket. They also doubled the child tax credit from $500 to $1,000, reduced the marriage penalty, and reduced the tax disincentives toward saving. These tax cuts are all slated to expire at the end of 2012. In total, because of the expiration of just these three tax policies, 70 percent of Taxmageddon would fall directly on low-income and middle-income families. That’s about $346 billion less for families to spend and a whole lot more for government to spend.
That’s not all. If Congress fails to act, then a lot more Americans are going to pay the alternative minimum tax, or AMT. This tax was only supposed to be paid by “the rich.” But, as so often happens, a tax targeted at the rich expanded over time so that it now threatens millions of middle-income families.
If Congress fails to act, workers won’t have to wait very long to feel the effects. Every payday, they would see a jump in their payroll tax as it takes a bigger bite out of every paycheck. And that only reflects the direct hit they’ll face. The health care surtax on investment income and salaries over $250,000—which begins in 2013 along with five other tax hikes—would slow job creation, because it would take away resources from businesses, investors, and entrepreneurs.
Other Taxmageddon tax hikes, such as the expiration of the “tax extenders,” the rise of the death tax, and end of 100 percent expensing for business investment, would also slow the economy. These would make it harder for those out of work to find a job or for those looking for a new opportunity to land a better job. It would also slam the stock market, making it harder to rebuild depleted retirement savings.
Congress and President Obama need to show voters they actually can get important things done, even in an election year. Stopping a nearly $500 billion economy-crushing tax hike shouldn’t be controversial. So what’s the hold up?