With only four weeks before the end of the year, the fiscal cliff remains the top priority in Washington. At the stroke of midnight on December 31, all Americans will pay the price if the President and Congressional leaders cannot reach an agreement.
Along with $1 trillion in across-the-board spending cuts, the fiscal cliff threatens the largest tax increase in American history. A number of tax policies, including tax relief enacted during President George W. Bush's tenure, are scheduled to expire. Make no mistake, the consequences of inaction are severe, and Nebraskans will not be immune. While every family is different, here's a look at what the average Nebraska family may face if Congress and the President fail to act:
Families making more than $45,000 per year may be subjected to the Alternative Minimum Tax, which was designed to prevent high-income earners from avoiding income tax. Today, most folks wouldn't consider $45,000 for a family "high income," but this is the level the tax will revert to if it is not adjusted for inflation before the end of the year. In Nebraska, inaction means an estimated 139,290 families will be affected--more than eight times as many as in recent years.
More than 156,000 Nebraskans take advantage of the Child Tax Credit, which is basically a $1000 coupon off your taxes for each of your children. This widely used credit would be cut in half.
Other changes slated to occur in January include increased taxes on capital gains, dividends and marginal rates. This totals another $779 for the average Nebraska family of four. These are just some of the changes looming in January if action isn't taken.
It's clear these tax increases would create a significant burden for many families across the state and country, especially as our economy struggles to rebound. Some argue increasing taxes on the wealthy, as the President has proposed, would solve our debt crisis. That might make for good campaign rhetoric, but in reality it is little more than smoke and mirrors because it only generates enough revenue to fund the government for about a week while barely denting our $1 trillion annual deficit. This tax hike would also hit many small businesses, which create 60 percent of new jobs.
All told, a typical Nebraskan family of four can expect a tax increase of $3,289 in 2013 if the fiscal cliff is not averted. A portion of this tax increase will come from the expiring payroll tax holiday -- something that likely won't get extended. This tax holiday, originally passed in 2010, cut the amount individuals and their employees contribute to Social Security. Extending this provision would further undermine Social Security, which already pays out more than it takes in. We need to strengthen this important program, but until then we should restore its source of funding and lower tax rates for working families so they don't feel the blow.
Blindly raising tax rates, as some are suggesting, is not the right answer. The solution to our debt crisis must come from targeted spending cuts, an overhaul of the tax code, and reforming the programs that account for most of federal spending. Our immediate focus must be to prevent the largest tax increase in our history from hitting nearly all Americans. I stand ready to work with Congressional leaders and the President to make sure that happens.