The fiscal cliff’s tax increase is $536 billion high, according to a new, non-partisan analysis released Oct. 1 by the Urban Institute and the Urban-Brookings Tax Policy Center. That amount, equaling nearly $3,500 per household, is how much taxes would rise in 2013 if Congress and the White House don’t do something to change the course of policy. It would raise federal tax collections by a fifth from what they would have been without the cliff. The study–”Toppling Off the Fiscal Cliff: Whose Taxes Rise and How Much?”–doesn’t analyze the automatic-spending-cut part of the fiscal cliff, which amounts to more than $100 billion in 2013. The combination is enough to knock the entire, fragile U.S. economy back into recession, by many economists’ estimates.
The truth is that Washington probably won’t allow all of the tax increases to take effect. On the other hand, it probably will let some of them take effect. So the cliff’s effect will be less than half a trillion dollars but greater than zero. The study’s authors–Roberton Williams, Eric Toder, Donald Marron, and Hang Nguyen–have provided a public service by breaking the cliff down into nine stages. Think of them as ridges on the way to the valley floor.
Here are the study’s estimated increases in 2013 revenue from various changes, starting with the ones that are highly likely to occur and ending with the ones that are least likely to occur. All of them involve expiring tax breaks except for the second on the list, the tax increases embedded in the Affordable Care Act. Numbers are rounded and in billions of dollars.
Payroll tax $115
Health care law provisions (new taxes) $24
High income capital gains and dividends $8
High income rates and exemption
and deduction phase-outs $44
Stimulus legislation’s earned income tax credit,
child tax credit, and American Opportunity
education tax credit $27
Extenders (temporary cuts, mostly for business) $75
Estate tax $31
Remainder of 2001-03 tax provisions $171
Alternative minimum tax patch $40
TOTAL $536
It’s worth noting that the order in which these are listed affects the dollar amounts. The (unlikely) expiration of the alternative minimum tax patch would generate a lot more revenue if it were counted first. For example, the AMT is designed to make sure that people can’t take advantage of tax breaks to completely avoid tax liability. If other taxes are raised first, there’s less left for the AMT to catch.
