"The reality is, the vast majority of Americans do live paycheck to paycheck and that tax refund is their most significant payday of the year," said Bob Meighan, vice president of TurboTax, an online tax preparation service.
Most of the expiring tax breaks were first enacted under President George W. Bush and extended under President Barack Obama. Obama campaigned for re-election on extending the tax cuts on incomes below $200,000 for individuals and $250,000 for married couples. Obama would let the tax cuts expire on incomes above those amounts.
In negotiations with House Speaker John Boehner, Obama offered to raise the income threshold, limiting tax increases to those making more than $400,000. Boehner, who has argued for years that the tax cuts should be made permanent for everyone, responded by trying to push a bill through the House that would have let many of the tax cuts expire on incomes above $1 million.
Many Republicans revolted and Boehner, R-Ohio, shelved the bill, sending lawmakers home for the Christmas holiday and leaving the outcome of talks in doubt as the new year approaches.
If Congress and the White House cannot reach a deal, income tax rates would go up, estate taxes and investment taxes would increase and the alternative minimum tax would hit millions of middle-income people. A temporary payroll tax cut that has benefited nearly every wage earner in 2011 and 2012 expires, costing the average family an additional $1,000 a year by itself.
In addition, dozens of other tax breaks for businesses and individuals that are routinely renewed each year already expired at the end of 2011. Congress was expected to renew many of them by January, so taxpayers could still claim them on their 2012 tax returns.
If Congress doesn't act on those tax cuts, businesses would lose a popular tax credit for research and development as well as generous tax breaks for investing in new plants and equipment. Individuals would lose federal tax breaks for paying local sales taxes, buying energy efficient appliances and using mass transit.
In all, taxes would go up by about $536 billion next year.
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