Huge tax increase, $500B government windfall looms at year-end ‘fiscal cliff’

A typical middle-income family making $40,000 to $64,000 a year could see its taxes go up by $2,000 next year if lawmakers fail to renew a lengthy roster of tax cuts set to expire at the end of the year, according to a new report out today. Taxpayers across the income spectrum would be hit with large tax hikes, the Tax Policy Center says in its study, with households in the top 1% income range seeing an average tax increase of more than $120,000, while a family making between $110,000 to $140,000 could see a tax hike in the $6,000 range. All told, the government would reap more than $500 billion in new revenue if a full menu of tax cuts were allowed to expire. The expiring provisions include Bush-era cuts on wage and investment income and cuts for married couples and families with children, among others. Economists warn that the looming tax hikes, combined with $109 billion in automatic spending cuts scheduled to take effect in January, amount to a “fiscal cliff” that could throw the fragile economy back into recession if Washington doesn’t act. Read the full story here. Also expiring is a 2-percentage point temporary payroll tax cut championed by President Barack Obama. Regardless of who wins the presidential election in November or what compromises Congress strikes in the lame-duck session, 160 million American wage earners will probably see their tax bills jump when the temporary payroll tax holiday ends on Dec. 31. Read more about that here.