Most of the ink spilled over negotiations surrounding the so-called “fiscal cliff” — the year-end set of tax increases and spending cuts — has covered the impending demise of the Bush tax cuts. But several other important tax provisions will also expire, some with severe impacts for the middle-class:
1. The payroll tax cut. A two point hike in the payroll tax — which affects every working American — would deliver one of the fiscal cliff’s biggest hits to economic growth. The Economic Policy Institute estimated that allowing the payroll tax cut to expire will lessen GDP by nearly one full percentage point.
2. The American Opportunity Tax Credit. Included in the 2009 American Recovery Act, this credit helps middle-class and low-income families pay for higher education. As CNN Money explained, this $2,500 annual credit ‘is scheduled to revert to the Hope Credit. At that point, the maximum credit will drop to $1,800. Also, families will only be able to claim the credit for two years and it will no longer be refundable.”
3. The Mortgage Forgiveness Debt Relief Act. This expiration of this provision would force homeowners who receive debt forgiveness on their mortgages — like that included in the $25 billion foreclosure fraud settlement — to count that relief as income, and thus pay taxes on it. As Firedoglake’s David Dayen explained, “all principal forgiven will count as earned income for those underwater homeowners. This will kick them into higher tax brackets, and introduce a tax burden upon them that they are overwhelmingly likely not to be able to afford.”
4. The Child Tax Credit. Included as part of the Bush tax cuts and then expanded under President Obama, the child tax credits reverts to its 2001 level at the end of the year. Allowing that to happen would cut the credit in half and take it away from lower-income Americans.
Negotiations over the fiscal cliff have barely grappled with some of these issues, and completely ignored others.