According to a new Tax Policy Center analysis, if all of the tax provisions as part of the “fiscal cliff” are allowed to expire, every income group would see taxes rise by at least 3.5 percent, and each household could face an average tax hike of almost $3,500. Experts say that such an increase could send the U.S. economy back into recession.
Like the rest of the country, the IRS is at the mercy of Congress, which is faced with reaching a deal during the postelection lame-duck session. Whether or not — and when — Congress extends the fiscal-cliff provisions will decide how the IRS readies forms, instructions, and withholding tables for 2013, which in turn determines how much each household and business must contribute in taxes next year. But no matter whether Congress can compromise, the IRS must finalize forms and set withholding tables for 2013 by Jan. 15 so employers can cut the first paychecks of the year. If Congress waits until the eleventh hour to cut a deal, that would give the IRS just two weeks to finalize, and perhaps revise completely, the work of its entire filing season.
Meanwhile, two senators working on a solution to the fiscal cliff say that going over it remains unlikely. "I do believe that we will avoid sequestration," said Mark Warner, a Democratic senator from Virginia.
Warner and Republican Senator Saxby Chambliss (Ga.) are leading the "Gang of Eight" talks aimed at avoiding the spending cuts embedded in the fiscal cliff. The Gang of Eight senators want to put Congress in a position to deal with sequestration in the 30 days or so that it will have between the November 6 election and the end of the year, Chambliss told a conference hosted by the Securities Industry and Financial Markets Association.
"I wish we could walk in here and tell you that we have a silver bullet," he said. "But it is going to be a very tough political slugfest in that period of time."
The chances of a comprehensive legislative solution to the cliff problem before January 1 are considered slight, and members of Congress have been looking for some temporary fix to buy time once a new Congress and a new or re-elected president are sworn in.
“This is a challenge ... that is going to require both sides," Warner said. "It's going to require extra revenues, it's going to require entitlement (cuts)." Simply putting off the hard decisions on spending would be a mistake, he added. "I think a complete punt would be awful."