In the power struggle between congressional Republicans and President Barack Obama over taxes and spending, one way to keep things clear is to focus on the timeline.
A massive increase in taxes is scheduled to take effect on New Year's Day 2013, unless Congress and Obama agree to an alternative — and there’s a lot that has to happen before that.
Here’s a timeline of what’s going to play out in the months ahead:
- Oct. 1 (which is only 12 days away): The government’s new fiscal year, FY 2012, begins. By this date, Congress must approve and the president must sign a bill to fund government operations, even if it’s a stopgap bill covering only a few weeks or months.
- Nov. 23, 2011: The Budget Control Act of 2011, which last month ended the debt ceiling standoff between Obama and congressional Republicans, created a Joint Select Committee on Deficit Reduction, made up of six Democrats and six Republicans.
Nov. 23 is the date by which that committee is required to vote on a report and a proposed bill specifying ways to cut cumulative budget deficits by at least $1.5 trillion between FY 2012 and FY 2021.Story: The supercommittee on deficit reduction
A simple majority, seven of the 12 members, is sufficient to report the committee’s proposals to Congress for further action.
But if the committee does not come up with a report and a proposed bill, then the Budget Control Act would make automatic spending cuts beginning on Oct. 1, 2012.
- Dec. 23, 2011: By this date, each house of Congress must vote on the bill recommended by the deficit reduction committee.
No amendments to the bill are allowed and, in the Senate, the debate on the bill cannot go beyond 30 hours — so using a filibuster, or dilatory debate, to kill the bill is impossible.
Of course the president has the power to veto the bill and Congress has the power to override his veto, by a two-thirds vote of both houses.
- Dec. 31, 2011: The payroll tax reduction which Congress enacted and which Obama signed into law late last year expires on New Year’s Eve, unless Congress and Obama take action to extend it.
This tax cut — which reduced the Social Security payroll tax on workers from 6.2 percent to 4.2 percent on income up to $106,800 — is handing taxpayers $111 billion in additional income, which may be helping the economy from sinking further into stagnation.Video: McConnell: Buffett can ‘send in a check’ (on this page)
Obama has proposed to expand and extend this tax cut next year so that the Social Security tax on both workers and employers would be only 3.1 percent.
He has proposed to offset this tax cut partly by limiting the value of itemized deductions and certain other tax breaks for high-income taxpayers. If Obama and Congress cannot agree on a plan for the payroll tax, then it would revert to its normal 6.2 percent level for workers on New Year’s Day 2012.
- March-June 2012: By next spring, the Republican nominee for president will in all likelihood be chosen, with one of the contenders having won enough primaries and caucuses to make his or her nomination almost inevitable. That GOP candidate will then help define the debate with Obama over spending and tax policy.
- Oct. 1. 2012: FY 2013 begins. If the deficit reduction committee had not agreed to a plan in 2011, or if Congress rejected that plan, or if Obama vetoed it, then automatic cuts would start on Oct. 1, 2012.
Those automatic reductions would be spread almost evenly over the next ten years; half the cuts would come from defense spending and half from non-defense spending. According to the Congressional Budget Office, in FY 2013, the automatic cuts would reduce outlays by about $54 billion, which would be relatively small, about 1.5 percent of total federal spending.
- Nov. 6, 2012, Election Day: The voters choose 435 House members, 33 senators, and the president.
Crucial tax deadline after 2012 election
- Dec. 31, 2012: Unless Congress and the president take action before this date, income taxes will go up for almost all taxpayers.
For example the $1,000-per-child tax credit will be cut to only $500 per child, resulting in a large tax increase for middle-class families with children under age 17.
The standard deduction for married couples who file joint tax returns would be cut from $11,600 to $9,950 in 2013, resulting in a higher tax bill for them.
The tax rates for all taxpayers will also go up: for low-income people the income tax rate will go from 10 percent to 15 percent; the top marginal income tax rate will increase from 35 percent to 39.6 percent.
What all this means is that that interval between Election Day and New Year's Eve 2012 is shaping up as very likely the most crucial period for writing tax law in the next few years.
To avert a significant tax increase for most taxpayers, Obama and Congress would need to agree on something to replace or extend the current tax rates and credits, preferences and other tax breaks.
Whether Obama wins or loses the presidential election, he will be in a position to have a big impact on tax law. Of course if he loses the 2012 election, his successor could well propose a new tax law to the new Congress in 2013.
- Jan. 1, 2013: This is the starting date for the new higher Medicare tax for upper-income taxpayers. The 2010 health care law created a new 3.8 percent tax on investment income for higher-income people and raised the Medicare tax on wages and salaries on individuals with income above $200,000 a year and for married couples filing jointly who earn more than $250,000 a year.
So if you look over this calendar and watch the customary gridlock in Washington, it’s not difficult to imagine the most important decisions being put off until after the American people vote in November 2012.
Given the pessimism of veteran budget and tax experts on the joint deficit committee being able to agree on a plan, it seems most likely that action won't occur until it really has to: right before end of 2012. And with tax law never really being permanent, the tax issue could be re-opened in 2013 — especially if a new president is in the White House.
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