This year, the deadline for filing 2011 taxes coincided with “Tax Freedom Day,” the day on which most Americans will have earned enough money to pay their 2012 tax bill. For 2012, taxpayers needed 107 days of income to pay federal, state and local taxes at an estimated combined rate of 29.2 percent.
Americans may have earned enough money to pay this year’s taxes, but what happens in 2013 when several tax cuts expire? Experts say taxpayers may face “Taxmageddon” if Congress does not act to mitigate the impact.
The Tax Foundation warns the $500 billion tax increase set to go into effect on Jan. 1, 2013, could push tax freedom day to the end of April or even later.
The Foundry, part of the Heritage Network, estimates the tax bill for the average American family could increase by as much as $3,800. The higher tax bill would result from a variety of factors including a reduction in the child tax credit, the reinstation of the marriage penalty and a reduction in tax incentives for savings.
According to The Foundry report, “In total, because of the expiration of just these three tax policies, 70 percent of Taxmageddon would fall directly on low-income and middle-income families.”
And if that were not bad enough, as many as 34 million Americans will likely be forced to pay the alternative minimum tax (AMT) and families with more than $250,000 in income will be hit with the health care surtax. Retirees who often depend on investment income in the form of dividend checks will also face higher taxes.
Of the estimated $500 billion in tax hikes, $165 billion will result from the expiration of the Bush tax cuts, Fox News reports. The end of the payroll tax cut will result in an $124 billion tax increase.
“The expiring cuts would hit all income groups but those at low and middle incomes the hardest,” wrote Jim Angle in the Fox News article.
How serious is this problem? According to the Washington Post, economists fear “Taxmageddon” could push the United States economy back into recession due to the fact that $500 billion will go to the government instead of being pumped into the economy.
How big of an impact would a $3,800 tax hike have on your spending? Are you worried about “Taxmageddon”? What do you think presents the bigger problem -- higher tax bills or a larger national debt? Let us know in the comments.