If Congress and President Obama don’t come together before the end of this year, Americans could face another grave setback to our economic recovery: the largest tax increase in U.S. history.
As of Jan. 1, 2013, the Bush tax cuts are set to expire and five of the 18 tax increases from Obamacare will kick in. All together, this will produce a $494 billion tax increase. Because of its potentially devastating effects, the increase has been coined “Taxmageddon.”
Congress has the ability to prevent this from happening, but they continue to put it off as the election approaches.
Our generation, which consists of roughly 7.6 million taxpayers, will certainly feel negative effects. According to the Heritage Foundation fact sheet titled “How Will Taxmageddon Impact You?”, on average, millennials will see a tax increase of $1,099.
This will come as a blow, since the average U.S. income is only $23,917. Other age groups will see even larger increases. The overall percentage increase varies by legislative district. A report by William W. Beach of the Heritage Foundation shows that Spokane can expect a 5.1 percent increase.
Not only will money be taken out of our paychecks, but employment will slow down. In order for businesses to plan for next year, they need to know how much they will be taxed. The longer Congress waits to act, the more uncertainty.
Businesses dislike uncertainty, and if they believe that they will have to pay more in taxes, they will definitely cut back on spending. This will severely hinder our already slow job creation rate.
In conjunction with this massive tax increase, spending cuts are looming across the board. These cuts were agreed upon in the Budget Control Act of 2011, and will also take effect Jan. 1.
The combination of tax increases and cuts has the real possibility to force our economy back into recession. I absolutely believe that we need spending cuts.
However, we need to be smart about how we cut; we cannot just cut everything equally. We must closely examine every spending commitment we have and truly ask ourselves what can be cut. It will not be easy, but it is necessary for the health of our economy.
What can be done about this? Congress and President Obama need to move past partisan politics and work together to reach a compromise.
Steps must be taken to reduce the deficit, but we need to analyze everything thoroughly, and not just implement cuts on everything and significantly raise taxes. We can by no means afford this ‘fiscal cliff’.
Hubbart is a sophomore majoring in economics. Comments can be sent to [email protected].
