WASHINGTON — Millions of families and businesses will get hit by big tax increases a lot sooner than many realize if Congress and the White House don’t agree on a plan to skirt the year-end fiscal cliff of higher tax rates and big government spending cuts.
More than 70 tax breaks enjoyed by individuals and businesses expired at the end of 2011. If Congress doesn’t extend them retroactively back to the beginning of this year, a typical middle-class family could face a $4,000 tax increase when it files its 2012 return in the spring, according to an analysis by H&R Block, the tax preparing company
At the same time, businesses could lose dozens of tax breaks they have enjoyed for years, including generous credits for investing in research and development, write-offs for restaurants and retail stores that expand or upgrade, and tax breaks for financial companies with overseas subsidiaries.
Tax cuts first enacted under President George W. Bush, and extended under President Obama, are scheduled to expire next year. A temporary reduction in the Social Security payroll tax is set to vanish as well. Obama wants to let the Bush-era tax cuts expire on incomes above $200,000 for individuals and $250,000 for married couples, while extending the tax cuts for people making less.
House Speaker John Boehner and other Republicans have said they are open to more tax revenue through reducing or eliminating unspecified tax breaks.
But Boehner, an Ohio Republican, moved toward the president’s position late last week, proposing raising top rates for people earning more than $1 million in exchange for deeper spending cuts, particularly in health care and other mandatory spending programs. Obama has not accepted that offer, according to people familiar with the talks, but Boehner’s offer suggests that the negotiations are being renewed after appearing stalled just days ago.
Lost in the debate is a big package of tax breaks that already expired for 2012. Lawmakers in both parties say they expect those tax cuts to be addressed in any deal to avoid the ‘‘fiscal cliff.’’ But they don’t want to deal with them separately because that would reduce pressure to reach a broader budget agreement.
The biggest tax increase facing individuals for this year is the alternative minimum tax. The tax was first enacted in 1969 to ensure that wealthy people can’t use tax breaks to avoid paying any federal taxes.