The Daily Item, Sunbury, PA

News

December 25, 2012

Your financial cliff Q & A

(Continued)

Q: Isn’t this Congress almost over?

A: Yes. The new Congress elected Nov. 6 will take office on Jan. 3.

Q: What does that mean?

A: That means the legislative process must start over and all bills proposed or acted on this year will die. Democrats will gain seats in the House and Senate. Republicans will still control the House and have procedural power to block action in the Senate.

Q: Is the debt ceiling part of the negotiations?

A: Yes. The U.S. will reach the $16.4 trillion debt ceiling this year, and Treasury can use so-called extraordinary measures to extend the deadline until at least mid-February, according to the Congressional Budget Office. Republicans say they want spending cuts equal to the size of a debt-limit increase. The administration wants to remove the requirement that Congress approve future increases.

Q: Does anything have to happen before Dec. 31?

A: As many as 100 million U.S. households, or two-thirds of the total, may not be able to file their tax returns until at least late March 2013 if Congress doesn’t reach an end-of-year budget agreement, according to the Internal Revenue Service. The alternative minimum tax, a parallel tax system once designed to affect the wealthy, is scheduled to affect about 28 million additional households for tax year 2012, up from about 4 million otherwise. Without legislation to prevent that, the IRS would have to delay the start of tax filing season in January. The IRS has said there is no “magic time” by which the agency needs an answer from Congress.

Q: What happens if the U.S. goes “over” the cliff?

A: The Congressional Budget Office projects that the economy would go into recession in the first half of 2013 if the tax increases and spending cuts occur and aren’t retroactively resolved.

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