The Drag of Uncertainty - A Made-in-Washington Recession For 2013
If Congress does nothing and the United States plunges off the "fiscal cliff" in three months, taxes would rise for 90 percent of Americans due to automatic increases in income and payroll taxes and other financial shocks.
This so called "Taxmageddon" is a one-year $494 billion tax increase slated to strike the economy on January 1, 2013.Taxmageddon is a massive tax increase coming in 2013, made up of several expiring tax policies, and the beginning of some taxes from Obamacare.
The Tax Policy Center, a Washington think tank, predicted taxes would rise by an average of almost $3,500 per household.
Cuts in the individual income tax, capital gains tax, dividend tax and other taxes affecting most Americans were pushed through in 2001 and 2003 by President George W. Bush. They were extended under Obama in 2010, but will expire at the end of 2012.
With this said, the Congressional Budget Office (CBO) forecasts a recession for 2013. Forecasters rarely anticipate a recession. Almost by definition, recessions surprise. Some unexpected force or forces conspire to so disrupt the economy that it contracts.
For most, forecasting a recession is entirely out of character. Yet CBO forecasts the economy to slow from 2.2 percent growth in the second half of 2012 to a –0.3 percent contraction for all of 2013. Why? Taxmageddon and the fiscal cliff. As the Financial Times noted in its editorial of September 22 of this year, "Despite an increasingly anaemic labour market, Congress is failing to stimulate the economy and address the ‘fiscal cliff’ of expiring tax measures and planned spending cuts, which could plunge the U.S. back into recession."
Taxmageddon is the nearly $500 billion tax hike set to strike on January 1, 2013. It is comprised of the expiring 2001/2003 tax cuts (lower income tax rates, doubled child tax credit, etc.), plus the expiration of the 2 percentage point payroll tax rate reduction, plus some smaller items. The fiscal cliff combines Taxmageddon with massive spending cuts already scheduled to take effect, including huge cuts to national defense under the sequestration provision left over from the farcically failed super-committee effort in 2011, plus delayed deep cuts to Medicare providers (the “doc fix”) and some smaller items.
SOURCE: Heritage.org, Reuters.com