Enjoy tax day 2012, next year could be 'Taxageddon'

Sure, this tax day won't be fun, but a raft of tax cuts are set to expire this year, and with Congress preoccupied by Election 2012, Americans face the prospect of a much bigger tax bill in 2013.

Think tax day 2012 is bad? Just wait – tax day 2013 could be a real humdinger.

Not because of the taxes you’ll be doing late into the night of Sunday, April 14, 2013. But because the tax situation for the next year may be a serious, unbridled mess.

Decoder certainly isn’t minimizing this year’s tax pain – what, the government can hire clowns and mind readers and here I am picking up the tab?

“That’s what’s making writing that check for taxpayers today so difficult and so painful,” said Rep. Jason Chaffetz (R) of Utah on a call with reporters. “When they see the waste, fraud and abuse that happens at the GSA and other parts of government it’s just so frustrating to the American people. And it should be.”

But frustrating won’t begin to describe taxpayer pain if almost half a trillion in tax hikes come into being on Jan. 1, 2013. Looming on the horizon are a raft of tax proposals that could blow up in taxpayers faces so immensely that Chamber of Commerce President Tom Donohue wrote sardonically in a Tuesday op-ed that “Tax Day is upon us – and you should enjoy it. Why? As painful as it may be to write this year’s check to Uncle Sam, it could be the smallest check you’ll write for years to come.”

What’s coming due at year’s end? According to one analysis by a scholar at the conservative Heritage Foundation, nearly $500 billion in tax increases including the following:

• $165 billion from the expiration of the Bush tax cuts.
• $124 billion from the expiration of the Social Security payroll tax cut.
• $118 billion from a failure to patch the Alternative Minimum Tax
• Roughly $60 billion from various tax cuts expiring – including stimulus cuts, estate tax cuts, and favorable treatment for businesses that make big purchases.
• $20 billion from tax increases from President Obama’s health-care reform law.

Holy smokes, right? No wonder members of Congress nearly always list heading off what Heritage calls “Taxageddon” as a principal concern. Add to that the fact that Congress has to deal with the budget-slashing sequester and the need to again raise the debt ceiling and December could be harrowing, indeed. 

But while America talks tax turkey today, the chances of fixing the tax code between now and December are slim, says long-time Washington watcher Stan Collender of Qorvis Communications.

Mr. Collender points out that many expect Washington’s best – and perhaps only – opportunity to legislate on tax issues will be the lame duck session between November and year’s end. Between tax day and November, the argument goes, members of Congress will be too distracted by the national political election to make much headway on such tough issues.

That leaves the lame duck. And that’s hardly an auspicious moment for many practical reasons.

While there are seven weeks on the calendar between Election Day and New Year’s Eve, Collender says, that’s really more like four weeks when you account for Christmas, Thanksgiving, and a one-week exhale after the election.

Lame duck sessions are “notoriously difficult” for legislating, Collender points out, as ousted or retiring members and their staff are looking for their next jobs and, eventually, losing their offices to incoming members.

“Some [exiting] members just stop voting, they go home, the leadership can’t force them to do anything,” Collender says. “What are you going to do, take away their committee assignments? It’s difficult to count votes and difficult for leadership to maintain discipline.”

Given a cloudy electoral situation – it’s unlikely one party will sweep Congress and the White House – and the lame duck’s limitations, where will taxpayers be at year’s end? Collender thinks they’ll be left largely in the lurch with short-term extension of current tax law – Bush tax cuts and payroll tax cut, live on! –before Congress returns in January to battle anew.

“Instead of the mother of all lame duck sessions it could be the mother of all disappointments,” Collender says. Americans will be saying, “ ‘Curses! Foiled again!’ and we go on for another six months.”

See you next April.