Tax policies that were enacted 12 years ago during the Bush era are set to expire Dec. 31. Left unchecked, the expiration will lead to higher income tax brackets, increased capital gains tax rates and a slew of other cash consequences.
Some pundits have dubbed the situation the “fiscal cliff,” or “taxmageddon” because of the likelihood of a recession if the current tax policy is not extended.
The Washington, D.C.-based Tax Policy Center estimates 90 percent of Americans would experience a tax hike in 2013 if Congress doesn't act, an average of almost $3,500 per household, totaling more than $500 billion.
According to the non-partisan Joint Committee on Taxation, the child tax credit would be cut in half, from $1,000 to $500 per child, costing 31 million families about $1,028 more in taxes.
The 10 percent tax bracket would be eliminated, raising the lowest tax rate to 15 percent. All other tax brackets would also increase.
The Joint Committee estimates a family of four earning $50,000 per year would be hit with $2,200 more in taxes and a single parent earning $36,000 would face $1,100 in higher taxes if the policies expire.
There are many more ramifications, according to the data.
Joy Gaasch, president of the Chamber of Commerce Grand Haven, Spring Lake, Ferrysburg, said she expects many “unintended consequences” if Congress fails to act.
She said there is concern among area business owners, but not panic.
Rick Meads of Rick Meads Accounting, 700 Washington Ave., said he's sitting tight with his personal finances. He's advising others to do the same.
“My best guess is they will reach some kind of agreement on Dec. 31,” Meads said. “If you do anything on the assumption that an agreement is not going to be reached, then it turns out an agreement is reached, you may have shot yourself in the foot.”
Meads said because the stock market soared in recent months, many investors may be tempted to sell because of the possibility of higher capital gains taxes in 2013.
“You may want to do that, but that decision should be strictly based on the market itself and not on what Congress may or may not do,” Meads said.
Financial planner Ed Dublis of Diversified Financial Concepts, 975 Taylor St. in Grand Haven, isn't as optimistic about an extension of current tax provisions.
“It's very difficult to advise people until you know what's going to happen,” Dublis said. “I don't think they're going to extend it. When politicians can increase taxes without having to do anything, it's a win-win for them. They can both blame each other and we pay.”
Dublis said depending on your circumstances, it may be wise to shift income into the current year if possible.
To read more of this story, see Saturday’s print or e-edition of the Grand Haven Tribune.