Many Americans are breathing a sigh of relief as they finally manage to file their income-tax returns. No need to worry about taxes again for another year, right?
Not so fast. Higher taxes are coming. And they'll hit well before next April 15.
How bad will it be? Federal Reserve Chairman Ben Bernanke calls it a "massive fiscal cliff." According to The Washington Post, the looming tax hike is "Taxmageddon." All told, Americans will see taxes go up $494 billion, starting at the beginning of 2013. That's less than nine months from now.
It all breaks down to one of the most sizable tax bills in history. Every household in America would face an average tax increase of $3,800 -- in a single year.How, you may be wondering, did this come about? When did Congress pass a tax increase? It didn't. At least, not directly. The increase is set to happen automatically. As of next Jan. 1, tax policies in seven different categories will expire, and five of the 18 new tax hikes from Obamacare will begin.
It's a near-perfect fiscal storm -- occurring just after a major national election, no less. Among the tax breaks that are expiring: the Bush tax cuts that occurred in 2001 and 2003, the payroll tax cut, and the tax cut from the 2009 stimulus.
That's not all. The estate tax, known more accurately as the Death Tax, rises to 55 percent. The 100 percent exemption for business investment goes away. Also among the soon-to-be-missing: the patch that lawmakers passed to ensure that the Alternative Minimum Tax (AMT) doesn't snare more and more middle-income earners (instead of the super-rich it was originally designed for).
This $494 billion increase is unprecedented in scope. To give you a better idea of how big it really is, consider that all of the tax hikes in Obamacare -- a huge tax hike in and of itself -- add up to $502 billion over a 10-year period. Taxmageddon will extract almost that much from Americans next year alone. Saddling a "jobless" recovery with this monster hike is spectacularly bad policy.
And we don't have to wait until next Jan. 1 to start feeling these negative effects. Families, businesses and investors can see these tax hikes coming. Because they can't be sure if or when Congress and President Obama will act to avert them, they'll hold off on any major economic activity that would result in a sizable new tax bill. This uncertainty is poisonous. And it can only result in fewer jobs, less economic activity and reduced investment.
That's why it's important that policymakers act now to forestall this result. Unfortunately, history doesn't give us much reason for hope. Our elected leaders tend to delay taking such necessary steps until the last minute. Usually they're engaged in some political horse-trading to land some special-interest deal. Meanwhile, the economy suffers -- and American workers and their families pay the price.
It's time for Congress and the president to stop playing games with our fiscal future. Smart tax reform is essential for the recovery to finally kick into gear. That means, among other things, moving the tax system toward a flat rate for all. It would be simple, fair and transparent. Instead of an overly complex system filled with special-interest loopholes, we could have one that enables anyone to fill out a tax form with ease.
"The power to tax is the power to destroy," Chief Justice John Marshall once said. Especially if that power is handled irresponsibly. Let's hope that Congress and the president are ready to prove the cynics wrong -- and protect us from Taxmageddon.
Ed Feulner is president of The Heritage Foundation (www.heritage.org).