Avoiding the Plunge
A combination of expiring tax cuts, automatic spending cuts and a need to raise the debt ceiling at the beginning of 2013 has led the United States to the verge of what Federal Reserve Chairman Ben Bernanke has called a “fiscal cliff.” Congress is unlikely to address the issue until after the November election creating more uncertainty in an already sluggish economy.
According to the Congressional Budget Office, if the tax cuts expire and spending cuts take effect, the federal government will save more than $600 billion in 2013 but plunge the economy into a double-dip recession.
Components of the Fiscal Cliff
Commonly referred to as the “Bush tax cuts,” they were scheduled to expire at the end of 2010, but a last-minute agreement provided a two-year extension that also included an extension of benefits to the long-term unemployed and a payroll tax cut. In addition, the Alternative Minimum Tax is scheduled to impact millions of Americans in 2012 and there are dozens of tax credits and deductions that expired in 2011 or will expire in 2012. Lastly, new taxes associated with the president’s health care law take effect in 2013.
Further complicating matters are automatic spending cuts set to begin at the start of 2013. Last year, the Joint Select Committee on Deficit Reduction, better known as the Supercommittee, failed to reach an agreement on a 10-year, $1.2 trillion deficit reduction package. This triggered automatic, across-the-board budget cuts for defense and most domestic programs starting next year. The threat of such cuts was meant to spur Congress into agreeing on a deficit reduction deal, but that did not occur and now many programs are facing approximately an eight percent cut for 2013.
In early 2013, Congress is also expected to vote on another increase to the debt ceiling. Currently capped at $16.394 trillion, it is the maximum amount of debt the U.S. government can incur by law unless Congress votes to increase it.
Prospects for an Agreement
The Senate passed a version of the President’s proposal on July 25 by a vote of 51-48 without Republican support for the legislation. If enacted, income-tax rates for couples with taxable income exceeding $250,000 would rise from 33 percent to 36 percent, and tax rates on income of more than about $390,000 would rise from 35 percent to 39.6 percent.
Republicans in the House and Senate have reiterated their support for extending all the Bush tax cuts, including the current rate for dividends and capital gains and on individuals in the top income tax brackets. The stand-off has led to finger-pointing on both sides. Congressional gridlock on tax cuts, spending and the debt ceiling will continue until after the November election when at least a short-term resolution is possible before the end of the year. WDMA remains engaged in this debate and is working with Congress and the White House to make sure the interests of door and window manufacturers are represented.
Ben Gann is director of legislative affairs and grassroots activities for the Window and Door Manufacturers Association in Washington, D.C.