The President and Congress are heading back to Washington just days before a deadline for the nation going over the so called fiscal cliff. That's a combination of spending cuts and tax hikes that take effect unless a deal can be reached to ease the federal deficit and extend some tax cuts. YNN's Bill Carey says deal or no deal, the impact could be painful.
UNITED STATES -- Even long term members of Congress, who thought the pressure of an approaching fiscal cliff would force Washington into a compromise on tax hikes and spending cuts, now aren't so sure.
“It's the first time that I feel that it is more likely that we will go over the cliff, than not,” Connecticut Senator Joseph Lieberman said.
Most Americans, who've been focused on the holidays, could be in for a very rude awakening if there is no deal by the first of the year.
“I would say between that $50,000 and $200,000 mark, those are the people who are going to pay, probably, $4,000 to $10,000 more in taxes if we fall off the fiscal cliff, so to speak,” said Mike Reilly of Dannible and McKee.
Businesses are also bracing themselves, wondering just what will happen to their tax bill.
Reilly said, “They're going to have less capital to work with, because they have to pay taxes. They're probably going to cut employment, effectively and try to run more efficiently. They're going to purchase, potentially, less equipment.”
The reality of political pressure on Congress will likely force some step, if even retroactively, to extend tax cuts for middle class taxpayers, thus avoiding the painful hit on take home pay in the new year. There will also be some steps to make sure that many small businesses are spared.
But that still leaves a deficit issue to contend with and lawmakers are moving more and more toward taking a close look at spending cuts that could take away some key programs. There is also talk of sweeping reforms of the tax code to try to bring in more revenue. Some of those steps could be very difficult.
“Eliminating or reducing mortgage interest, real estate taxes. The state taxes that we pay to New York, which is currently a deduction on our Schedule A for itemized deductions, they're talking about possibly eliminating that,” said Joseph Hardick of Dannible and McKee.
The outcome of the crisis, no matter how it is resolved, will be far from painless.
The U.S. Senate is due to go back into session in Washington on Thursday. Leaders there say they are prepared to act on any "fiscal cliff" deal. There is no word on when the House of Representatives will go back into session.