You can't turn on the news these days without hearing about the looming "fiscal cliff." The stock market goes up and down daily as some small bit of good or bad news is reported about avoiding the economically catastrophic tax increases and automatic spending reductions that are set to occur at year's end.
I believe Congress and the White House can come together and reach the necessary bipartisan agreements that are needed to avoid the fiscal cliff and put America's economic house in order again. The stakes for our economy and our future are enormous. According to the Congressional Budget Office, the impending tax hikes and across-the-board spending reductions in most programs (known as sequestration) would drag America back into recession and push unemployment back above 9%.
Going over the fiscal cliff would also mean higher interest rates on credit cards, personal debts, and new mortgages. Fewer of our children would be able to find work, and hopes for rejuvenating our economy would be dashed.
The underlying problem is out-of-control deficits. For the fourth consecutive year, our budget deficit is over $1 trillion. Total debt now exceeds $16 trillion, and our country will be financially crippled if we don't deal with deficits.
Several bipartisan solutions have been put forward, including a plan from the President's Simpson-Bowles Commission. The President has said repeatedly that taxes must be raised on those who make more than $200,000. But if every millionaire in America were taxed at 100%, it would put only a small dent in our enormous budget deficits.
Although going over the fiscal cliff would raise taxes on everyone, the big threat is to middle class families. If action isn't taken by year's end, middle class families, small business owners, and retirees are going to take it on the chin in their 2013 taxes.
More than 31 million middle class taxpayers will face something called the "alternative minimum tax" for the first time. The AMT was enacted years ago to assure that the wealthiest people paid a certain amount of tax. Thanks to inflation and bracket creep, the AMT is about to affect married couples whose joint taxable income is $45,000.
Uncertainty about taxes has small businesses stuck in neutral. Three-quarters of small businesses pay taxes at individual rates. Until they know what their tax rates for 2013 will be, the businesses that account for almost two-thirds of new job creation are standing still - and more than 20 million Americans who are looking for work will be on hold, too.
Senior citizens who saved for retirement are at financial risk, too. Taxes on dividends are set for huge increases on January 1 - to as much as 40%. Retirement planning and financial security will go out the window for millions who did all the right things throughout their working lives.
Also at risk if we don't avoid the fiscal cliff are my two top tax priorities. First, in states like Texas, which don't have an income tax, the deductibility of sales taxes for federal income taxes assures fairness with other states. If state sales tax deductibility isn't renewed by year's end, millions of Texas taxpayers will see their federal income tax bills swell by an average of $500 next year.
My second priority is renewing tax relief for middle class married couples. Before my amendment was made law in 2001, 25 million married couples were forced into higher income brackets and paid an average of $1,400 more than they would have as single people. This marriage penalty is, well, un-American, and my fix must be renewed.
There is still time for Congress and the White House to come together on a comprehensive long-range fiscal plan - to avoid punishing tax increases that will kill our weak economy, assure long-term Social Security and Medicare solvency (without cutting current benefits), and lock in prudent spending limits that will pare back deficits. The first step is for Congress and the White House to agree before year's end on a tax and spending framework that will avoid the fiscal cliff and put our country back on the right track.