The News Courier in Athens, Alabama

State and Nation

November 13, 2012

Most in US won't be able to escape 'fiscal cliff'

(Continued)

And it could catch many people by surprise.

"Every worker in America is going to see a reduction in their paycheck in the first pay period of 2013," Vitner noted.

An additional 20 percent of the tax increase would come from the end of about 80 tax breaks, mostly for businesses. One is a tax credit for research and development. Another lets companies deduct from their income half the cost of large equipment or machinery.

Mark Bakko, a Minneapolis accountant, says many mid-size companies he advises are holding off on equipment purchases or hiring until the fate of those tax breaks becomes clear. Bakko noted that the research and development credit typically lets a company that hired an engineer at a $100,000 salary cut its tax bill by $10,000. The credit has been routinely extended since the 1980s.

The rest of the tax increase would come mainly from the alternative minimum tax, or AMT. It would hit 30 million Americans, up from 4 million now.

The costly AMT was designed to prevent rich people from exploiting loopholes and deductions to avoid any income tax. But the AMT wasn't indexed for inflation, so it's increasingly threatened middle-income taxpayers. Congress has acted each year to prevent the AMT from hitting many more people.

Under the fiscal cliff, households in the lowest 20 percent of earners would pay an average of $412 more, the Tax Policy Center calculates. The top 20 percent would pay an average $14,000 more, the top 1 percent $121,000 more.

All this would lead many consumers to spend less. Anticipating reduced sales and profits, businesses would likely cut jobs. Others would delay hiring.

Another part of the cliff is a package of across-the-board spending cuts to defense and domestic programs — cuts the CBO says would total about $85 billion. Congress and the Obama administration agreed last year that these cuts would kick in if a congressional panel couldn't agree on a deficit-reduction plan. The magnitude of the cuts was intended to force agreement. It didn't.

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