Congressional Gridlock May Be Costly

As you probably know there are several tax breaks that will sunset on December 31.  The administration is in favor of letting some of these breaks expire and the Republicans in Congress want to protect the tax breaks and implement some budget cuts. The tax cuts that were enacted in 2001 and 2003 were then renewed in 2010.  As those rates return to their pre-2001 and 2003 numbers, in effect that will mean a tax increase on Americans.

Here are the taxes due to expire:

• 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%.

But wait! There’s more!  The taxes that were enacted as part of the Patient Protection and Affordable Care Act will also go into effect in 2013.  That means, on top of all of the above:

• 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)

 Not a very rosy scenario.  As a matter of fact, several studies have indicated that should these taxes sunset, the resulting lose in economic vitality would be considerable.  In the case of one study done by the Congressional Budget Office (CBO), it forecast we could see another recession in 2013.  However, if all current policies were extended for a prolonged period, federal debt held by the public would rise much faster than GDP, a path that could not be sustained indefinitely. 

We find ourselves between the proverbial "rock and a hard place".  We have to find a way out of this economic dilemma.  There is going to be some pain no matter what solutions we adopt.  Congress has to put away its partisan politics and work together to find a way out of this morass.  Some economist feel that the U.S. economy is in as much trouble as some of the European economies.  The only thing that keeps us afloat is the size of our economy.  Let's get it fixed before we are faced with the dire consequences that some of our European brothers are facing.  It's going to take compromise.

State Behind the Eight Ball

With the Supreme Court's ruling that the Patient Protection and Affordable Care Act is constitutional, it has put North Carolina behind the eight ball in setting up a mandated marketplace where uninsured people and small businesses can shop for health insurance. The law mandated that each state establish a health benefits exchange or the federal government would assume that responsibility.  Here again, do we want to manage our own our let the Federal government do it for us?



States that want to retain control of the exchanges are  facing a mid-November deadline to apply to have detailed plans approved by January so they can begin operating a year later. 2014 would be the earliest a state could begin operating.  North Carolina has no plan. Although both chambers approved a provision in a technical corrections bill expressing their intention to establish an exchange, only the House passed legislation actually creating it. The Senate did not act on the house bill and now that the law was ruled constitutional North Carolina is facing a deadline it cannot meet.




So it appears the  U.S. Department of Health and Human Services will take control of North Carolina’s exchange. The state can apply to take control back, but it won’t be able to do so until it does enough work to show that it can take over the program at least a year before it actually does.  So the State of North Carolina is somewhat in limbo and dependent on the Federal government to administer its health benefits exchange.  Not a good position to be in.  Let's hope our state officials get busy and return as much control as possible back to the state.



Don't forget there is an election tomorrow, July 17th.  Go vote.  It is the run-off elections.  Many people have forgotten about the run-offs so turn out will be light.  GO VOTE!!