Budget 2013: What Lies Ahead
The Joe Biden- Mitch McConnell talks were being viewed as the most crucial stage in the federal budget negotiation for fiscal year 2013. If the senate fails to resolve the mater the deficit reduction enactment approved in 2011 will automatically come into force at the start of 2013. The resulting tax hikes and spending cuts could trigger a recessionary cycle commonly termed as the “fiscal cliff”. Any further delays in resolving the matter could avert investors away from securities market. Major stock indices have been declining continually.
The major issue under discussion on the Sunday session involved deciding which income group should be subject to the current tax rates in the year ahead as the Republicans demand or should this relief be extended to only those below the latest taxable limit proposed by Obama i.e. $250,000 a year. The session has been adjourned till Monday and a final resolve could go public a few hours from now.
Aside from US cliff negotiation the agenda of the session will also address the demands of a year long extension in the U.S. farm law to avoid a rise in dairy product prices. Milk prices could increase by over $7 per gallon in 2013 in case an extension is not approved. Another matter of urgency is grant of relief for Sandy affected areas however it appears voting on this would be deferred before this year’s last session of the Senate, which is due on January 2nd.
If an agreement is not reached before January 1st 2013, the working class of America including the white collar section will be subject to an additional 2% payroll tax. Moreover, neither the house nor the Senate has shown interest to extend the payroll tax holiday for year 2013 because Social Security benefits need funding through taxes. An alternative remedy may be provided to the middle income section through “minimum tax patch” but nothing is approved till now.
The Internal Revenue Service declared that 100 million tax refunds could be delayed and worse still those affected could also face higher tax if Congress does not intervene with a retroactive remedy. Obama is still determined to push for tax hikes for his view of the wealthier America Congress reserves the right to demand a conditional retroactive relief after Tuesday however there are no signs of willingness to compromise from both the Democrats and Republicans side of the house.