Friday, July 27, 2012

Can We Descend the Fiscal Cliff Safely?

  • Fiscal Cliff at Accounting Today

  • NOTE: I considered titling this "Forward Over the Fiscal Cliff," but decided that that headline would be more appropriate for Tax Guru Kerry Kerstettler.

    As the election and the end of 2012 approaches, the end of the Bush tax cuts also approaches and businesses are caught wondering what if any action will be taken for two seperate reasons: the sunset of the cuts and the need to raise revenues/cut spending/combination of both based on last year's debt ceiling compromise.  Present action does not look promising: the Democratic Senate has voted to extend only the cuts for taxpayers with AGIs under $200K/250K (based on marital status) while the Republican House almost surely will vote to extend all cuts.  Meanwhile, both Senators and House members of both parties have called on President Obama to announce where "sequestration" cuts will be made in defense and entitlements if the House and Senate cannot agree on $1.5 trillion in taxes/cuts by the end of the year.  So far, the President has not done this.  The article claims that inaction could lead to effective tax rates over 50% for some workers and small businesspersons and that willingness to hire new employees will be and may already be starting to be affected.  To increase the level of uncertainty, some Democratic Senators such as Patty Murray (WA) have threatened to end all Bush tax cuts unless Republicans compromise at some level regarding tax increases; anathema to the Tea Party branch of Republicans.

    One can hope for a compromise on the Bush tax cuts, perhaps at the $1-2 million per year level rather than the present $250,000.  While less than ideal, it would allow the Democrats a "half victory" while giving certainty to business planners.  I have even less hope on the $1.5 trillion and see sequestration as very possible--though this may not do much more than offset costs incoming from the recent Supreme Court decision on the Affordable Care Act/"Obamacare."  Finally, while President Obama's Roanoke remarks have gathered more attention; it may be that Senator Murray and the Democratic Senate is doing more real harm to business activity by increasing uncertainty about future taxation.

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