Taxmageddon: Tax Tsunami Could Hit January 1, 2013

Jul 16, 2012 by

by Henry W. Burke –

INTRODUCTION

Countries do not get much warning before a natural tsunami hits and nothing can be done to stop it. The huge wave rolls over the coastline, destroying everything in its path. There is a big difference between the natural tsunami and this American tax tsunami. We know exactly when the tax tsunami will hit America — January 1, 2013; and we can prevent it!

The largest tax increase in history is coming and most people are not aware of it. If Obama and Congress do not act this year, an enormous tax hike will hit American taxpayers starting January 1, 2013.

This is similar to having 10 people go to a movie together. When they get to the ticket window, 3 of them are required to pay 91% of the ticket costs and purchase almost all of the refreshments!

According to The Washington Post, congressional aides started calling it “Taxmageddon” — a chilling reference appropriate for an apocalyptic nightmare. “Taxmageddon” has become the accepted label for this set of tax hikes. Federal Reserve Chairman Ben Bernanke named it a “massive fiscal cliff.”

By any measure, the impending tax increases are huge! Taxmageddon will amount to $494 billion in tax hikes. On an individual level, average taxpayers will see their taxes increase by about $2,000 to $4,000 next year!

How Will Taxmageddon Impact You?

Most of you are probably asking — “How will Taxmageddon affect me?” You are not interested in lots of calculations; you simply want an answer that fits your situation.

The Heritage Foundation calculated the average tax hike that will hit various cohorts (families, baby boomers, etc.). If Congress and Obama do not take action, you will see these tax hikes next year in 2013. These tax increases are the amounts that your taxes will go up each year (as compared to 2012).

Subsequent years will be somewhat higher when other Obamacare taxes are applied. Most of the new, higher taxes do not kick in until later in the decade, which means that if indeed all of Obamacare were to be fully implemented, the taxpayers’ tab would be much bigger than originally estimated.

We must hope that the elections of November 6, 2012 will oust Obama from the White House and put a majority of conservative Republicans in the U. S. House and Senate.

Taxmageddon’s Impact on Individual Taxpayers (Tax Hike for 2013)

Category

Average

Income

(AGI)

Tax Increase

Under

Taxmageddon

% of

Average

Income

Total No.

of Filers

(millions)

Families $70,662 $4,138 5.9 % 15.0
Baby Boomers $95,099 $4,223 4.0 % 33.1
Low-Income Workers $24,757 $1,207 4.7 % 53.8
Millenials $23,917 $1,099 4.6 % 7.6
Retirees $42,553 $857 2.0 % 33.

 

Source: The Heritage Foundation’s Center for Data Analysis

http://www.heritage.org/multimedia/infographic/2012/06/how-will-taxmageddon-impact-you

The following examples will illustrate the numbers:

1. Example #1 — Family (AGI = $70,662)

Roberto and Juanita have an Adjusted Gross Income (AGI) of $70,662. They are concerned about the looming Taxmageddon tax hikes and want to know how it will affect them. Their taxes will go up $4,138 next year due to Taxmageddon. After 2013, they will see a somewhat higher level of taxation (higher than the $4,138 tax hike for 2013).

2. Example #2 — Baby Boomer (AGI = $95,099)

Charles and Janet have an Adjusted Gross Income of $95,099. Due to the Taxmageddon, their taxes in 2013 will be $4,223 higher than in 2012. Each year after 2013, they will pay at least $4,200 more in taxes than they will pay in 2012. The later years will be higher than 2013 as Obamacare taxes are fully implemented. Of course, their tax bill will depend on their income in future years.

3. Example #3 — Low-Income Worker (AGI = $24,757)

Frank has an Adjusted Gross Income of $24,757. He does not consider himself a “low-income worker.” He works hard and earns a steady living but he is on a tight budget. He cannot afford a tax increase of any kind. Unfortunately, Frank will have to pay an additional $1,207 in taxes next year because Congress did not address the Taxmageddon nightmare. He will have to pay at least $1,200 each year thereafter to the IRS.

4. Example #4 — Millenial (AGI = $23,917)

Teasha has an Adjusted Gross Income of $23,917. She has just started her career and is glad she was able to find a job. (Many of her friends have not been as fortunate and are living with their parents.) Teasha is also on a tight budget and wants to know what impact Taxmageddon will have on her. She will face a tax hike in 2013 of $1,099. She must pay similar tax amounts in subsequent years.

5. Example #5 — Retiree (AGI = $42,553)

Su Lin and Jun have an Adjusted Gross Income of $42,553. They are retired and live on a fixed income (mostly from Social Security and their retirement account). Because their income is fixed, it increases only slightly with cost-of-living adjustments. For their situation, they will see an increase of $857 in their 2013 tax bill. They will pay about $860 more in subsequent years than they pay in 2012.

6. Example #6 — General Case

If you cannot find your situation in the above examples, you can approximate the result by multiplying your AGI by about 6.0 %. Of course, the tax rates vary with income levels and other parameters. For example, there is a $110,000 limit on Social Security taxes.

The Heritage Foundation analyzed the affects of Taxmageddon by states and congressional districts. The information is contained in a Special Report published June 14, 2012, entitled The Cost of Taxmageddon: Impact by State and Congressional District by William W. Beach.

http://thf_media.s3.amazonaws.com/2012/pdf/sr-110.pdf

Taxmageddon Scope and Size

Taxmageddon will amount to $494 billion in tax hikes. Most of these are the result of long-standing policies that expire at the end of 2012. Without Congressional and White House action, this tax time bomb is set to explode January 1, 2013!

Taxmageddon Tax Hikes in 2013 (All figures in $ Billions)

Tax Policies Set to Expire on Jan. 1, 2013

Tax Increase

in 2013

($ Billions)

Bush Tax Cuts $165.750
Payroll Tax Cut $124.636
Alternative Minimum Tax (AMT) Patch $118.750
Tax Cuts from 2009 Stimulus $20.876
Tax Extenders $20.465
Death Tax at 35 % with $5 million Exemption $13.000
Business Investment — 100 % Expensing $7.695
Total — Tax Hikes Beginning in 2013 $471.172 billion
Tax Hikes in Obamacare — 2013 Only $22.750
Total Tax Hikes in Taxmageddon $493.922 billion
Approximate Total Tax Hikes $494 billion

 

Sources: Office of Management and Budget (OMB), and Joint Committee on Taxation

 

 

http://www.heritage.org/research/reports/2012/04/taxmageddon-massive-tax-increase-coming-in-2013

 

 

 

The three largest tax hikes will come from the expiration of the Bush tax cuts, the temporary payroll tax cuts, and the Alternative Minimum Tax (AMT) patch. The expiring Bush tax cuts amount to about $166 billion; the payroll tax cut is $125 billion; and the Alternative Minimum Tax patch is $119 billion. These three tax increases alone add up to $409 billion (about 83 % of the $494 billion total).

 

 

 

Taxmageddon Is Huge

 

 

Usually, federal budgets and tax policies are evaluated over 10 years. Each year, the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) prepare reports that show budgetary figures over the next 10 years. We often focus on one year, but the reports evaluate the effects over the 10-year period.

 

 

We reported that Obamacare will impose a 10-year tax increase of $502 billion on the American people. (See “The Obamacare Taxes” by Henry W. Burke, 7.06.12.)

 

 

http://libertylinked.com/posts/9951/the-obamacare-taxes—-by/View.aspx

 

http://educationviews.org/the-obamacare-taxes/

 

 

 

That $502 billion tax hike figure for Obamacare is quite large, but it is spread over 10 years. Next year in 2013, Obamacare will demand $22.75 billion in new taxes. By comparison, Taxmageddon will impose a whopping $494 billion tax hike in one year! A tax increase of that magnitude is simply off the charts! This would be the largest tax increase in history.

 

 

 

 

Obama Has Ignored Taxmageddon

 

 

So far this year, Obama has ignored Taxmageddon. Obama recently broke his silence on the subject by continuing to push for tax increases on the wealthy. He was drawn into the debate not because he wants to solve our economic problems but because the dismal economic data forced his hand.

 

 

On 7.06.12, the Bureau of Labor Statistics (BLS) released the miserable June unemployment numbers. Unemployment is stuck at 8.2 %; only 80,000 new jobs were created during June. This is far below the 150,000 jobs per month that are required just to keep up with population growth.

 

 

On Monday, 7.09.12, Obama again proposed tax increases on “the rich” when he urged repeal of the Bush tax cuts. It is the same old thing; Obama plans to raise taxes on incomes over $200,000 ($250,000 for families filing joint return).

 

 

Obama is resurrecting old tax plans and playing the class warfare card. He thinks this will distract people from looking at the economy. At the same time, he thinks it will fire up his base and win him support for his re-election bid. Everything he does is about the November election.

 

 

 

 

Obama’s Taxmageddon Would Hurt Job Creators

 

Obama’s plan to repeal the Bush tax cuts for incomes over $200,000 ($250,000 for joint filers) would raise the top two marginal tax rates from 33 % to 36 %, and 35 % to 39.6 %. The debate about whether to adopt Obama’s tax increase centers heavily on how these higher tax rates would affect important job-creating businesses.

 

Curtis Dubay of The Heritage Foundation made some great observations on this subject. To understand the business and tax situation, we must look at the facts and get into the numbers.

 

About 4.3 million businesses in the U.S. have employees and file their taxes under the individual income tax code. These businesses generate $376 billion in income.

 

Obama’s plan to raise taxes on incomes over $200,000 a year would increase taxes on 1.2 million of them; these businesses represent 28 % of the total number (1.2 million / 4.3 million = 28 %). However, these 1.2 million businesses generate $341 billion out of the $376 billion total income (91 % of the total income).

 

This is similar to having 10 people go to a movie together. When they get to the ticket window, 3 of them are required to pay 91% of the ticket costs and purchase almost all of the refreshments!

 

 

The successful people are doing more than their fair share to support America. These businesses create most of the income and also most of the jobs in this group.

 

By targeting his tax increases on incomes over $200,000, Obama is maximizing the detrimental effects of the tax hikes on job creation. Obama’s misguided tax policies will continue to destroy jobs and hamper an economic recovery.

 

http://www.heritage.org/research/reports/2012/07/obama-s-taxmageddon-tax-increase-would-hurt-job-creation

 

According to Heritage research, the average American with $250,000 or more in income can expect an average tax increase of almost $25,000 next year. That $25,000 is enough to cause the firing of one employee.

 

http://blog.heritage.org/2012/07/13/obamas-small-business-tax-could-average-25000/

 

Obama often declares that his plan would raise taxes only on “the rich” to force them to pay their “fair share.” However, less job creation as a result of Obama’s tax increase would make it harder for unemployed Americans at all income levels to find new jobs.

 

 

Taxmageddon Hits the Middle Class

 

Taxmageddon will fall primarily on middle-income and low-income Americans. That is because 60 % of the Bush tax cuts went to middle- and low-income taxpayers. The expiration of the Alternative Minimum Tax (AMT) patch will cause these taxpayers to pay a tax never intended for them. Also, the expiration of the payroll tax cut is a tax hike almost exclusively on middle-income and low-income families.

 

It is important to look beyond the direct impact on individual taxpayers. Because Taxmageddon will slow job creation and wage increases, Americans at all income levels will feel the pain.

 

With the Bush tax cuts, most of the attention is directed at reducing the marginal tax rates. Middle-class taxpayers will also be hurt by the lesser-known features of the Bush tax cuts. These include reducing the marriage penalty and increasing the Child Tax Credit and the adoption credit. Also included are increased tax breaks for education costs and dependent care costs. Taxmageddon definitely hurts the middle class.

 

 

Taxmageddon Is Already Impacting Businesses

 

 

Businesses are holding off on hiring. Although these taxes do not take effect until January 1, 2013, they are already having a negative impact on the economy. This slows job creation and prevents many unemployed Americans from going back to work.

 

 

Uncertainty harms everyone. Families, businesses and investors need certainty to operate. They need to know how much they will pay in taxes next year before they make important economic decisions. Politicians decry the fact that billions of dollars are sitting on the sidelines. People will not invest in businesses and hire new employees in an uncertain business climate. They are stuck in neutral while they wait to see if Congress and Obama will act.

 

 

 

Taxmageddon Would Cause Another Recession

 

At the recent Western Economic Association International, economic forecaster, Dr. Allen Sinai predicted that the “fiscal cliff” of 2013 would cause another recession. A recession is unavoidable if Congress does not act to fix the fiscal cliff.

 

Dr. Sinai’s Decision Economics Inc. uses a large-scale economic model to predict economic growth and fluctuations. The model predicted that the tax increase would lower the Gross Domestic Product (GDP) by 2 percent. The U.S. has recently hovered around a 2 % growth rate (1.9 % for the first quarter of 2012); therefore, a 2 % drop in the GDP would drive the growth rate to zero for years to come.

 

http://blog.heritage.org/2012/07/07/forecast-taxmageddon-would-cause-another-recession/

 

 

 

Elected Officials Urge Prevention of Taxmageddon

 

On 6.05.12, former President Bill Clinton agreed with The Heritage Foundation that we must stop Taxmageddon from happening. Clinton said we need to find a way to avoid the fiscal cliff.

 

http://blog.heritage.org/2012/06/06/clinton-agrees-with-heritage-stop-taxmageddon-from-happening/

 

 

Speaker of the House John Boehner (R–OH) and Senator Jon Kyl (R–AZ) understand that Taxmageddon must be stopped soon. Former Governor Tim Pawlenty (R–MN) also sees the problem. (Tim Pawlenty is National Co-Chair of the Romney for President Campaign.)

 

 

On 5.15.12, Speaker Boehner gave an address before the 2012 Fiscal Summit in which he said that Congress must work to prevent a massive tax increase that averages $3,000 per household. He emphasized that Congress should not wait until New Year’s Eve to give American job creators the confidence that they aren’t going to get hit with a tax hike on New Year’s Day. The Speaker stated:

 

Any sudden tax hike would hurt our economy, so this fall – before the election – the House of Representatives will vote to stop the largest tax increase in American history.

 

 

http://www.speaker.gov/speech/full-text-speaker-boehners-address-economy-debt-limit-and-american-jobs

 

 

 

Will Congress and Obama Act in Time?

 

 

Congress and Obama have a penchant for waiting until the last minute on pressing legislation. In 2010, they waited until December to extend the expiring Bush tax cuts for two years. At the end of 2011, they again waited until late December to extend the expiring payroll tax holiday. They typically wait until the national debt is bumping against the national debt limit before raising the debt ceiling.

 

Conventional wisdom says that Congress and Obama will get nothing done in 2012 until after the elections. That leaves the “lame duck session” of Congress to finish the work. In a lame duck congress, Members who have retired, Members who have been defeated, and Members who have moved on to other offices must finally complete the nation’s business in a chaotic environment. The situation is not conducive to getting real work done.

 

We need to push our Representatives, Senators and Obama to focus on Taxmageddon. Without a concerted demand for action, they will procrastinate and delay the hard work until the lame duck session.

 

They should not take a summer vacation until the work is finished; they should make Taxmageddon their summer and fall project. The House and Senate take extensive breaks at this time of year. They will be in session: July 17-31, August 1-3, September 10-21, and October 1-5, 2012. Election Day is Tuesday, November 6, 2012.

 

http://hobnobblog.com/wordpress/wp-content/uploads/2012/01/2012_CongressionalCalendar_WEB.pdf

 

 

Taxmageddon must be delayed for at least a year and preferably longer. We must prevent the largest tax increase in history from occurring!

 

 

 

Bio for Henry W. Burke

 

 

Henry Burke is a Civil Engineer with a B.S.C.E. and M.S.C.E. He has been a Registered Professional Engineer (P.E.) for 37 years and has worked as a Civil Engineer in construction for over 40 years.

 

Mr. Burke had a successful 27-year career with a large construction contractor.

 

Henry Burke serves as a full-time volunteer to oversee various construction projects. He has written numerous articles on education, engineering, construction, politics, taxes, and the economy.

 

 

Henry W. Burke

E-mail: hwburke@cox.net

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