WHY IT MATTERS: Taxes
Just about every U.S. taxpayer is facing a significant tax increase next year, unless Congress and the White House can agree on a plan to extend a huge collection of tax cuts that expires at the end of the year. Beyond that, there's much debate over how to overhaul the tax code to make it simpler, with lower rates balanced with fewer deductions. Can homeowners hang onto their juicy mortgage interest deduction? If it's taken away, can lawmakers hang onto their jobs?
Where they stand:
President Barack Obama wants to extend Bush-era tax cuts again, but only for individuals making less than $200,000 and married couples making less than $250,000. Those making more would see their taxes go up, though they would still pay less than when Bill Clinton was president. Obama also wants a new rule requiring people who make more than $1 million a year to pay at least 30 percent of their income in federal taxes.
Republican presidential candidate Mitt Romney wants to extend all of the Bush-era tax cuts and enact some new ones. Romney proposes dropping all income tax rates by 20 percent, reducing the top tax rate from 35 percent to 28 percent. The bottom rate would go from 10 percent to 8 percent. Romney says he would pay for the rate cuts by eliminating or reducing tax credits, deductions and exemptions, but won't say which ones would go.
Why it matters:
If Congress can't agree on a plan to extend the Bush-era tax cuts, income tax rates would go up for people at every income level. Estate taxes and investment taxes would increase and the alternative minimum tax would hit millions of middle-income people. A payroll tax cut that has saved workers an average of about $1,000 a year in 2011 and 2012 would expire. Dozens of business tax breaks would go away.
In all, taxes would go up by more than $400 billion next year. Combined with federal spending cuts scheduled to take effect in 2013, the one-two punch would probably send the U.S. economy back into recession, according to government economists.
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