If you thought paying your taxes was painful this year, get ready for more heartache next year, when taxpayers could be on the hook for almost $500 billion in higher taxes.
That's the size of "Taxmageddon."
Taxmageddon is the tax hike set to slam the economy and taxpayers on Jan. 1, 2013. It's made up of seven different categories of tax cuts set to expire, and six tax hikes from the health-care law set to kick in, as soon as the ball drops on New Year's Eve.
A tax increase the size of Taxmageddon for just one year is simply unprecedented. By comparison, the Affordable Care Act contained a huge tax increase: $502 billion over 10 years.
Taxmageddon's tab is $500 billion just for 2013. Its size over 10 years would be off the charts! This fiscal cliff, as Federal Reserve Chairman Ben Bernanke called it, would deal a crippling blow to the already staggering economy. It would suck more than an extra 3 percent out of the private economy and give that money to Congress to spend less efficiently than the families and businesses that earned it. Thankfully Taxmageddon need not strike the wounded economy. There is time for Congress and President Obama to stop these economy-wrecking tax hikes. And the sooner they act, the better.
The families, businesses and investors headed toward Taxmageddon want certainty that their taxes won't rise steeply next year. And they want that certainty as soon as possible. That way they can start making plans for the future. The possibility of stinging tax hikes is a large part of the Washington-created uncertainty holding the economy back from full recovery. Congress and the president should start work now to free the economy from the weight of looming tax increases. Taxmageddon is a big tax hike, but how will it affect you? Every household in America would face an average tax increase of $3,800.
A big portion of that increase will occur because the Bush tax cuts 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. That all goes away if Taxmageddon happens -- and Tax Day will be all the more painful for it. That's not all. You'll be much more likely to pay the alternative minimum tax, or AMT. This tax hike was only supposed to be paid by "the rich," but it is on track to fall heavily on middle-income families next year. Tax Day won't be the only day that is more painful should Taxmageddon occur. Every payday you'll see a smaller check because the payroll tax will rise and take a bigger bite out of your check. In total, because of the expiration of just these three tax policies, 70 percent of Taxmageddon would fall directly on middle- and low-income families.
And that figure only includes the direct hit you'll face. The health-care surtax on investment income and salaries over $250,000 -- which begins in 2013 along with five other tax hikes -- will slow job creation because it will 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, will do the same. That'll make it harder to find a job if you're out of work or to land a better job if you're looking for a new opportunity. It will also make it harder to earn more at your current job, or earn a higher return on your retirement savings.
Will Congress and the president fix all this soon? One would hope. But recent experience indicates otherwise. They've developed the bad habit of delaying until the last possible minute the handling of pressing tax issues.
In 2010 they waited until the very end of December to stop the first expiration of the Bush tax cuts. In 2011 they waited until the last minute to put off the expiration of the payroll tax cut. Waiting until the bitter end would be a big mistake.
Besides the harm that uncertainty inflicts on the economy every day that Taxmageddon goes unfixed, the public's confidence in Washington is abysmally low.
Voters should be shown that Congress and the president actually can get important things done, even in an election year. Stopping a $500 billion economy-crushing tax hike shouldn't be controversial. So why wait?
Curtis Dubay is a senior policy analyst at The Heritage Foundation.
First appeared in Newsday