If We Jump Off the Cliff There Will be Some Penalties

With automatic budget cuts and tax increases set to begin in January, many economists say if we slide over this fiscal cliff, it could send us back into a recession.  I’m not so sure we have come out of the last one.  Anyway, don’t fear! Congress is expected to come back on Thursday and Obama is cutting his 20 day, $4 million tax payer’s dollar, Hawaiian vacation, in order to get together and prevent the economy from going over the so-called fiscal cliff.

OK, I’m sure there is nothing to worry about, and our genius representatives and President will save us from the fiscal cliff.  But let’s just say they don’t.  I know, I know, that is very unlikely.  After all, this is the same Congress that has failed to produce a budget in over four years.  I’m sure they will have no problem fixing this economic mess in just four days.  If we go over the fiscal cliff, without any of the automatic cuts and tax increases being addressed, there is one part that will affect millions of Americans and every married middle-class couple in America, the exact group of people the administration supposedly wants to “protect”.  And that is the return of the so-called Marriage Penalty.

As a result of the Bush tax cuts, married couples get a standard deduction that is exactly twice of that of their single counterparts.  And the income ranges for the 10% and 15% tax brackets are also doubled.  Prior to 2001, married couples had paid a “penalty” because their standard deduction and income tax brackets were less than twice those of singles.

Next year the disparity could return. While the standard deduction for single filers should rise to $6,100, married couples would receive a deduction of only $10,150 if something isn’t done to extend the provision. To remove the marriage penalty, the married couple deduction would have to be $12,200.

That’s just the affect this fiscal cliff thing will have on income taxes, but what if the President and Congress really don’t work things out before the deadline?  Well, it’s unusual for me to agree with CNBC on many things but they sum it up pretty well:

Partly by fate, partly by design, some scary fiscal forces come together at the start of 2013 unless Congress and Obama act to stop them. They include:

ž   Some $536 billion in tax increases, touching nearly all Americans, because various federal tax cuts and breaks expire at year’s end.

ž   About $110 billion in spending cuts divided equally between the military and most other federal departments. That’s about 8 percent of their annual budgets, 9 percent for the Pentagon.

ž   Hitting the national economy with that double whammy of tax increases and spending cuts is what’s called going over the “fiscal cliff.” If allowed to unfold over 2013, it would lead to recession, a big jump in unemployment and financial market turmoil, economists predict.

What if they never agree?

If negotiations between Obama and Congress collapse completely, 2013 looks like a rocky year.

Taxes would jump $2,400 on average for families with incomes of $50,000 to $75,000, according to a study by the non-partisan Tax Policy Center. Because consumers would get less of their paychecks to spend, businesses and jobs would suffer.

At the same time, Americans would feel cuts in government services; some federal workers would be furloughed or laid off, and companies would lose government business. The nation would lose up to 3.4 million jobs, the Congressional Budget Office predicts.

Well, everyone should be at work on Thursday.  Obama comes back, congress returns to the capitol; everyone will roll up their sleeves and get to work.  I’m sure of it.  After all, the current Congress is in session only through noon Eastern Time on Jan. 3. …After that, a newly elected Congress with 13 new senators and 82 new House members would inherit the problem.

I can’t wait to see what happens and how all of this plays out.  It’s like Christmas all over again!