I am very pleased to extend a warm welcome to Senator-elect Deb Fischer as a colleague in the U.S. Senate. Nebraskans have entrusted us with the tremendous responsibility of representing their ideals and concerns in Washington. I look forward to working with Deb to do just that. She’ll take the oath of office in January.
Before that happens, Congress has a serious laundry list of issues it must address. Terms like “fiscal cliff” and “Taxmageddon,” referring to a host of deadlines and tax increases at the end of 2012, paint a stark picture. The situation we are in is severe, and the need to reach some agreement is imminent. Failure to do so will have a potentially devastating impact on families and businesses in Nebraska and across the country. With only a few weeks before the end of the year Congress must address these fiscal challenges.
It’s important to pull the curtain back and understand what is at stake behind the catch phrases and labels. The current tax rates, which have been in place for the last 12 years, are set to expire at the end of this year, just as some new taxes are scheduled to take effect. At $536 billion per year, this would be the single largest tax hike in U.S. history. Roughly half comes from the expiration of the tax rate reductions and investment income tax rates implemented during President George W. Bush’s tenure.
Many Nebraskans are rightfully concerned about the expiration of estate or “death” tax policy. Currently, estates in excess of $5 million are taxed at 35 percent. If this policy is allowed to expire, estates will be taxed at a rate of 55 percent with only a $1 million exemption, dramatically expanding the scope of those affected. While a $1 million estate sounds like a lot of money, more than half of Nebraska’s farms would exceed this exemption in land value alone.
Another looming tax hike is the Alternative Minimum Tax, which was originally designed to keep high-income earners from avoiding income taxes through various exemptions. However, over the years, the “high income” threshold has been eroded by inflation. This mark for a family filing joint taxes is currently $74,450, but if congress doesn’t act, it will revert to $45,000. The Congressional Research Service estimates the number of Nebraska households impacted will climb from 16,546 in 2009 to 134,289 in 2013.
In addition, there are other expiring tax provisions including a number of popular deductions, like the child tax credit. To be clear, tax reform will not be easy. Deductions will be affected, but the goal is to lower overall tax rates and simplify your tax paperwork.
President Obama’s healthcare law will also add an additional $22 billion in new taxes next year alone. Besides those tax hikes, a round of automatic spending cuts known as sequestration are scheduled to kick in on New Year’s Day. The cuts, totaling $1.2 trillion over 10 years, are largely across the board, with half coming out of our national defense. I believe Congress must significantly reduce spending, but we need to carefully examine this blanket approach. I believe we can do better.
Despite disagreements about the right answer to our fiscal crisis, one thing remains uncontested: a new recession awaits us if we don’t responsibly address this fiscal cliff looming on the horizon. It’s time to make the difficult decisions that have been repeatedly put off. The alternative—crushing tax burdens and a shrinking economy—will undoubtedly be far worse.