Tax Foundation, The Fiscal Cliff: A Primer:
The fiscal cliff is the culmination of a decade of “temporary” tax
and budget bills that have postponed resolution of key policy
differences. Should the tax code be used to heavily promote income
distribution or aim instead to raise revenue in the least distortive
manner possible? How large should federal spending be? Should PPACA be
modified or repealed? Should there be a federal estate tax and if so, at
what level? Should the payroll tax be reduced and if so, how should we
fund Social Security and Medicare? What should Social Security,
Medicare, and Medicaid look like as the population ages?While most observers recognize the importance of dealing with the fiscal
cliff before it happens, the divided political landscape can encourage
brinksmanship to improve negotiating positions. No political actor wants
the fiscal cliff to take permanent effect in full; the next few months
will determine whether that happens anyways despite those intentions.
Table 1 … illustrates the revenue impact of the fiscal cliff
provisions. …In 2001 and 2003, President George W. Bush signed into law significant tax reductions for nearly all taxpayers. These cuts included marginal rate reductions, the introduction of a new
10% tax bracket, an expansion of the child tax credit, and a
variety of other provisions (see Table 2 for complete list). …The sheer size of the fiscal cliff in scope, importance, and dollars
signifies the uncertainty faced by American taxpayers. With so much of
the tax and budget system on short-term lease, and with the proposed
permanent fixes so widely varying, speedy economic growth becomes
untenable. While past practice suggests Washington will once again duct
tape together another short-term extension and put off the hard choices,
anything can happen.
Table 1: Tax Changes Taking Effect January 1, 2013
Tax Change
Tax Increase
(2013 over 2012)Expiration of the 2001-03 tax cuts (not including estate)
$156 billion
Expiration of the payroll tax holiday
$125 billion
Failure to patch the Alternative Minimum Tax
$88 billion
Expiration of business expensing
$48 billion
Expiration of other “tax extenders”
$40 billion
New PPACA (Obamacare) taxes
$36 billion
Expiration of the 2009 stimulus
$11 billion
Estate tax increase
$10 billion
Total, Tax Increases
$514 billion
Source: Tax Foundation; CBO; Joint Committee on Taxation; Office of Management & Budget.
_
Table 2: Major Bush Tax Cut Income Tax Provisions, 2001-2013
Tax Category
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010-2012
2013*
Income Tax Brackets
—
15%
28%
31%
36%
39.6%
10%
15%
27.5%
30.5%
35.5%
39.1%
10%
15%
27%
30%
35%
38.6%
10%
15%
25%
28%
33%
35%
—
15%
28%
31%
36%
39.6%
Capital Gains Tax (max)
20%
16.7%
15%
23.8%
Dividend Tax (max)
39.6%
39.1%
38.6%
15%
43.4%
Estate tax (top rate)
55%
55%
50%
49%
48%
47%
46%
45%**
55%
Estate tax exemption
$675,000
$1,000,000
$1,500,000
$2,000,000
$3,500,000**
$1,000,000
PEP & Pease
Full
Minus 1/3
Minus 2/3
Repealed
Full
Marriage Penalty
Joint Filer = 1.67 x Single
Joint Filer = 2 x Single
Joint Filer = 1.67 x Single
Child Tax Credit
$500
$600
$1,000
$500
Source: Tax Foundation
*Absent further congressional action.
**Estate tax was repealed completely for calendar year 2010.
