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Conventional wisdom would support the notion that the division of power between Congress and the White House should be healthy for the nation’s economic environment. However, the idea that our political leaders will find a place of compromise has not been borne out by events such as the recent debt ceiling debate. For Congress, the White House and ultimately the rest of us, this political paralysis will have huge negative consequences. Our Do Nothing Congress infographic illustrates the dates and deadlines of significant events that will be the result if further congressional inaction persists.
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Let’s take a closer look at upcoming deadlines and why they are important:
November 23, 2011: Super Committee deadline to produce a deficit reduction bill
The Super Committee was granted broad jurisdiction by the Budget Control Act with the goal to produce a plan that trims $1.2 to $1.5 trillion from the budget over 10 years. The committee is not restricted to just that amount, however, should they agree on less than the $1.2 trillion, automatic spending cuts would be triggered to make up the difference. They must come up with a bill by November 23 to be considered by Congress under expedited rules.
December 23, 2011: Congress votes on deficit-reduction bill
Once the Super Committee presents their bill to Congress, they must take an “up-or-down” vote which means they cannot amend or change the bill.
December 2012: approximate date when new debt ceiling will be reached
The new debt ceiling which was increased by $900 billion to $15.194 trillion by the Budget Control Act of 2011 will be reached. This was the fourth increase since President Obama took office.
January 2, 2013: Automatic spending cuts begin
The Office of Management and Budget will impose spending caps to achieve $1.2 trillion in savings over 10 years with $600 billion coming from defense and $600 billion coming from discretionary spending. That amounts to $54.7 billion annually in cuts from both parts of the budget although some program such as Social Security, Medicaid, and military pay will be exempt.
While these deadlines are important at the Federal level, many people will feel the pinch closer to home should other incentives and tax breaks expire.
December 31, 2011: Expiration of unemployment benefits and payroll tax breaks
More than 6 million Americans are set to lose Federal Unemployment Benefits in 2012, with 1.8 million running out in January 2012 alone if Congress fails to reauthorize them. With unemployment stubbornly entrenched above 9%, the prospects of finding a job remain grim.
The current law put into place by the Obama administration as a job stimulus that reduces Social Security payroll taxes from 6.2% to 4.2% is set to also expire at the end of 2011. Those cuts were estimated to give between $800 and $1,000 per year back to the average worker.
December 31, 2012: Bush tax cuts to expire
If the Bush tax cuts are allowed to expire, then the top tax rate will increase by 4.6% to 39.6%. Qualified dividends and long-term capital gains, currently taxed at 15% will increase to 39.6% and 20% respectively. The estate tax exemption also known as the death tax, currently at $5 million will revert back to its 2002 level of $1 million.