The increases have been dubbed “Taxmageddon,” named after the Battle of Armageddon, foretold in the Book of Revelation, that is to occur at the end of this age. Chances are the world won’t come to an end on New Year’s Day, 2013, but for millions of Americans, it may become a more expensive place to live in. The tax hikes, scheduled to take effect on January 1, will take their toll on families at all economic levels, at an average of $3,500 per household, according to the Tax Policy Center (TPC), a joint project of the Urban Institute and the Brookings Institution. The after-tax purchasing power of low- and middle-income Americans will be diminished, along with the capital available for investment from high-end earners. Some economists are warning that the combination of tax increases and spending cuts required by the sequestration provision of the Budget Control Act of 2011 could knock an already weak economy into another recession, adding to the ranks of the 12 million Americans officially counted as unemployed and the millions more who can find only part-time work, or have given up looking altogether.
“It would probably lead to a recession early next year,” predicted Doug Elmendorf, director of the Congressional Budget Office (CBO), unless Congress acts to halt the drive off what some are calling the “fiscal cliff.”
“You can call this a fiscal cliff,” Sen. Orrin Hatch (R-Utah), ranking Republican on the Senate Finance Committee, said earlier this year. “You can call it Taxmageddon, as others have done. Whatever you call it, it will be a disaster for the middle class. And for the small businesses that will be the engine of our economic recovery.”
The “holiday spirit” may be strained when the tax hikes, affecting some seven out of eight households, go into effect on January 1. Household incomes of between $108,226 to $143,000 will be taxed an additional $6,359, according to the Tax Policy Center. At the lower end of the scale, those with incomes of less than $20,113 a year will endure a tax hike of $412. The “marriage penalty,” resulting from narrower tax brackets for married couples, will return on January 1, while the child tax credit will be cut in half, from $1,000 to $500 per child. The two-percent payroll tax cuts, the earned income tax credit, and the childcare tax credit are among the tax breaks scheduled to expire at the end of the year. Education tax credits, a number of business deductions and credits, and deductions for state and local sales taxes are all scheduled to fall by the wayside.