Households could face average $3,500 tax hit if Congress can't avoid 'fiscal cliff'

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By Tom Curry, NBC News national affairs writer

Nearly 90 percent of Americans will see their taxes increase in 2013 if Congress and President Barack Obama can’t find a way to renew tax policies that are scheduled to expire at the end of this year, the nonpartisan Tax Policy Center said in a report issued Monday.
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Sen. Chuck Schumer, D-N.Y., joins Morning Joe to discuss the impending fiscal cliff and sequestration and why he thinks it will be dealt with in the lame duck session of Congress.

The average tax increase will be $3,500 per household if the current tax policies expire, the report estimated.
It isn’t necessarily an all-or-nothing decision Congress confronts – it could choose to extend some of the tax provisions but terminate others – but it’s precisely the complexity of picking and choosing from the items on the menu that will make bargaining difficult as the days dwindle down to Dec. 31.
At stake are several different tax provisions enacted at different times by different Congresses and presidents, some provisions as old as the estate tax, which began in 1916, and some as new as the temporary reduction in the Social Security payroll tax. In 2010, Congress lowered the payroll tax rate from 6.2 percent to 4.2 percent but it is set to revert to the higher rate on Jan. 1.

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House Speaker John Boehner answers questions during a press conference September 21.

Analysts refer to the looming tax increases and spending cuts required by the Budget Control Act as “the fiscal cliff,” which the Congressional Budget Office has said would cause a recession and an increase in the unemployment rate to 9 percent (from its current 8.1 percent) by the second half of 2013.
For most households, the two biggest tax increases – assuming Congress doesn’t act by year's end – will be the expiration of the payroll tax cut and the expiration of the 2001/2003 tax law, which included some provisions which target specific groups of Americans, such as the increased child tax credit and the increased standard deduction for married couples who file joint tax returns.
Most of the imminent tax increase – more than 60 percent of it – will be paid by people in the top 20 percent of the income distribution. The average tax increase on people on the top 20 percent of the income distribution would be $14,173 next year.
Those at the bottom end of the income scale, in the lowest income quintile, will see an average tax increase of $412 next year, while those in the middle quintile will see nearly a $2,000 increase.
For those in the bottom group, “some people who are (now) paying zero tax will be paying a little bit of tax, and some people who are getting refundable credits and paying negative taxes (in effect, getting cash payments from the Treasury) will see those refundable credits shrink,” said Roberton Williams, an analyst at the Tax Policy Center.