The Fiscal Cliff was Created Two Years Ago Today
December 17, 2012
Part of it, anyway. Today marks the two year anniversary of the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, where the Bush-era tax cuts, originally set to expire two years ago, were extended until the end of this year. This extension is part of a trend of temporary tax provisions – temporary tax cuts, temporary payroll tax holidays, temporary AMT patches – all of which signify Congress's willingness to cut taxes without admitting to the true budget cost of such policies or enacting corresponding spending reductions.
Given that the compromise two years ago was widely viewed as a down-to-the-wire finish, it's particularly worrying that there are still no signs of a deal this year. If there's no deal, tax rates will go up for everyone next year when the Bush tax cuts expire, and people will see their paychecks immediately shrink when the payroll tax holiday expires and federal income tax withholding increases. Then, next April, millions of families will get hit with a large and unexpected tax hike – because the AMT hasn't been patched for this year. Finally, the top estate tax rate will rise to 55%, and the estate tax exemption will shrink from over $5 million back down to $1 million.
Two years ago, Congress finished with only 14 days to spare; this year we're 14 days out and can't see the finish line.