Gregory: Looming 'Fiscal Cliff' Would Be Disastrous For Economy

To the Editor:

By now, most readers have probably heard of the so-called “Fiscal Cliff.” By way of a basic definition, the fiscal cliff is the phrase used to describe the challenge that the U.S. government will face at the end of 2012, when all the provisions of the Budget Control Act of 2011 are scheduled to go into effect. So what does it really mean to us as residents, taxpayers, business owners and employees? Well, let’s take a more in-depth look. Specifically, let’s look at what taxes are set to increase if nothing is done by the Congress and the President to prevent the act from taking effect. Well, if Congress and the President don’t act before January 1, 2013, the following taxes are set to increase at that time:

•  Marginal tax rates will increase:
• The 10% tax bracket will expire, reverting to 15%. 
• The 25% tax rate will rise to 28%.
• The 28% rate will rise to 31%. 
• The 33% rate will rise to 36%. 
• The 35% rate will rise to 39.6%.

• The tax rate on long-term capital gains will rise from 15% to 20%.
• The tax rate on qualified dividends will rise from 15% to ordinary wage tax rates.
• The PEP and Pease provisions will be restored, rescinding from certain taxpayers the value of some exemptions and deductions.
•  The two “marriage penalty elimination” provisions will expire, so that: 
•  The standard deduction for married couples will fall, no longer double what it is for single filers; and 
• The ceiling of the 15% bracket for married couples will fall; no longer double what it is for single filers.

•  The child tax credit will fall from $1,000 to $500.
•  The estate tax will be restored with an exemption level of $1 million (per spouse) and rates of 55%.

Also, taxes that were enacted as part of the Patient Protection and Accordable Care Act will also go into effect in 2013. That means on top of all of the above, the following will occur:

•  The 3.8% surtax on investment income
•  An additional 0.9 percentage Medicare Hospital Insurance tax (HI tax) on self-employed individuals and employees with respect to earnings and     wages received during the year above $200,000 for individuals, and above $250,000 for joint filers
•  $2,500 limitation on FSA contributions
•  2.3% excise tax on medical devices
•  Increase in threshold for claiming an itemized deduction for unreimbursed medical expenses for regular tax purposes from 7.5% of AGI to 10% (except for those over 65)

The Northern Rhode Island Chamber of Commerce and our partners at the Rhode Island Chamber of Commerce Coalition (which the Northern RI Chamber coordinates) and many of our business advocacy allies will be fighting to help ensure that Congress acts on these potential tax increases. The help of Chamber members and all Northern Rhode Islanders who are concerned about this potential economic disaster will be needed as we move forward in the coming weeks to show our Congressional delegation in Rhode Island the strong support that exists for taking action. The Northern Rhode Island Chamber of Commerce will be updating our website (www.nrichamber.com) with information about how you can help us in this effort.

Thank you. 

(Many thanks to our partners at the US Chamber of Commerce and the Vote for Business team for assistance.)

Sincerely,

John Gregory, IOM
President/CEO, Northern Rhode Island Chamber of Commerce