Warning: Taxmageddon is Coming

Taxmageddon, the term speaks of a disaster of biblical and apocalyptical proportions.  Should we build bomb shelters, stock up on food, and run for the hills.  I am not ready to go that far but Taxmageddon is something that will have an effect on many Americans.  So let us take a few minutes to look at what Taxmageddon is, how it will affect us, and what we can do to protect ourselves.

Taxmageddon is a perfect storm.  First, the Bush tax cuts are expiring January 1, 2013 (1).  Since these tax rates have been in effect since 2003, individuals and businesses have planned their budgets according to these rates.  If they suddenly expire on January 1, 2013 it will have the same effect on the economy as increasing taxes would.  The sad part is that if Congress and the President simply do nothing, the increases automatically happen.  During this election year, one would think the Congress would be eager to pass legislation keeping tax rates right where they are but some in congress blame the runaway deficits on these tax cuts and view this as an opportunity to reduce the national debt and deficit.

In addition to this, the payroll tax holiday will sunset.  This is a 2 percent decrease in the FICA or social security withholding tax that all working Americans have deducted from their gross pay each payday (1).  If this tax cut is allowed to expire it will mean all working Americans will see a 2 percent reduction of their take-home pay in their first paycheck for 2013.  This will be in addition to the increase in withholding tax due to the tax increase caused by the expiration of the Bush tax cuts. 

The convergence of these two events on January 1, 2013 constitutes a $494 million tax increase on Americans (2).  With the kicking in of the mandatory spending cuts under the debt-deal “sequester” one might believe that this combination of additional revenue combined with spending cuts is good for the economy.  However, that is only if we believe the American people and American businesses will not modify their behavior due to these tax increases and cuts. 

In reality, the tax increases will cause individuals and businesses to cut spending elsewhere in their budgets to come up with the additional taxes they will owe.  This will mean individuals will curtail their discretionary spending (go on fewer vacations, eat out less, buy fewer gadgets) all of which will further slow our stagnant economy.  Businesses will delay their plans for expansion and not be hiring any new people, resulting in continuing high unemployment. 

The mandatory spending cuts under the debt-deal “sequester” are mostly targeted at the defense budget.  This will result in the awarding of fewer defense contracts, resulting in more layoffs at defense contractors.  It also causes individuals and businesses to feel less secure.  These less secure Americans will be less apt to make long-term commitments such as buying a new home or car.  So, what is the current administration appear to be doing to address this problem.

It appears that the current administration would rather deflect attention away from this pending economic disaster by focusing attention on the Buffett Rule.  The Buffett Rule wants to raise taxes on the wealthiest Americans to reduce deficits and debt.  The truth is that the Buffett Rule would raise an estimated $46 billion over 10 years or about $4 billion a year.  At current spending levels, the government spends more than $4 billion a day (3).  The administration can go out and tout the Buffett Rule, which will do little to reduce deficits and debt because they know that Taxmageddon will automatically take effect on January 1, 2013 (3). 

To protect ourselves from Taxmageddon, we can do one of two things.  We could store up lots of cash so we will be prepared to meet our increased obligations.  However, the prolonged recession and sluggish economy has already exhausted the savings of many individuals and businesses (4).  This leaves us with only one solution, we must flood our Congresspersons, Senators, and the White House with calls, emails, and letters urging them to extend the current tax rates and either reduce them by 2% or extend the FICA payroll tax cut. 

This will insure individuals and businesses maintain their current income levels and we will not experience  further reductions in our economy.  We then need to take a serious look at changing our currently outdated tax policies to policies that fund the government without punishing achievement as our current progressive income tax does.  We also need to cut government spending by eliminating useless programs and departments.  Sure, this will result laying off  government employees but the reduction in taxes will result in job creation in the private sector for these employees plus the many chronically unemployed Americans.

You can go to www.whitehouse.gov to contact the White House, http://www.house.gov/representatives/find/ to find your Congressional Representative, and http://www.senate.gov/general/contact_information/senators_cfm.cfm to find your Senators.  Let us flood their phone lines, email inboxes, and mailboxes so they will know what we want them to do.  Be sure to remind them that there is an election coming up in November and if they are not interested in what we want, we will replace them with someone who is. 

1. Mataconis, Doug. What happens if all the bush tax cuts expire? Outside the Beltway. [Online] May 18, 2012. [Cited: June 15, 2012.] http://www.outsidethebeltway.com/what-happens-if-all-the-bush-tax-cuts-expire/.

2. Payne, Amy. Morning Bell: How taxmageddon will impact you. The Foundry. [Online] The Heritage Network, June 15, 2012. [Cited: June 15, 2012.] http://blog.heritage.org/2012/06/15/morning-bell-how-taxmageddon-will-impact-you/.

3. Rep., Scott DesJarias. DesJarlais: Buffett rule a distraction from Taxmageddon. washingtontimes.com. [Online] The Washington Times, June 12, 2012. [Cited: June 16, 2012.] http://m.washingtontimes.com/news/2012/jun/13/buffett-rule-a-distraction-from-taxmageddon/.

4. Mutikani, Lucia. Report shows carnage downturn caused to families' net worth. economywatch,msnbc.msn.com. [Online] MSNBC, 2012. [Cited: June 16, 2012.] http://economywatch.msnbc.msn.com/_news/2012/06/11/12170847-report-shows-carnage-downturn-caused-to-families-net-worth?lite?ocid=twitter.