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Former CBO Director Donald Marron on the potential impact on taxpayers of reaching the fiscal cliff.
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Well certainly one of the biggest issues the candidates will likely address tonight the looming fiscal collapse and a new report out from the Tax Policy Center says this.
Tax increases could adversely affected sentenced to work and say -- would encourage taxpayers to claim more deductions and exemptions.
Joining me now to -- the numbers former CBO director Donald Marron he is now the director of the Tax Policy Center and author of the report I just talked about.
Donald welcome back to the show it's great to see you.
Now it's going to be interesting to see how these two attack this topic which undoubtedly will be part of the conversation.
What do you expect.
You know I'm not sure we we're in this unusual circumstance where we have a tax code that's just riddled with uncertainty.
Lots of things expire at the end of the year as you say taxes are gonna go up they're gonna go up by about half a trillion dollars next year.
And I certainly hope the moderator asks them what their plan are for doing without.
Are right -- let's go through some of the details here because I don't think people really recognize.
The degree to which their tax flight is gonna completely changed so here's what the fiscal cliff means expiration of temporary cut Social Security taxes.
Expiration of the 2001 in 2003 tax cuts and expiration of the AMT patch.
And here's the bottom line which I think.
-- people have no idea what's coming this is from you guys this is your analysis you say average marginal tax rates we're gonna look at a variety of things here.
On wages and salaries.
Rising 5% on interest income 5% higher on long term capital gains 7% higher on.
Qualified dividends.
20% higher so -- at the end of the day what's the point.
-- putting money away of investing in the stock market couple of even working.
-- well some in all of those things will still get viewers turn right you still get to keep most of your money so don't give up working don't give up investing.
But I when you're -- -- -- tax credits are scheduled to go up depth and people respond to those incentives.
-- if they believe it's gonna happen.
Do you believe it's gonna happen.
So I think congress will step in eventually I'm not sure whether it's in December -- whether it's in January or February.
To prevent a lot of these changes from happening.
But certainly some of them well I think the payroll tax cut is going away for example and that Americans should prepare for -- So many different taxes so many different impacts and I think a lot of people should be doing their planning right now you know just in case.
But we think -- the broader impacts of this you know I think your report is -- on -- on the idea of it's really gonna impact people and how they save and invest in what they do.
The could have broader economic impacts.
Yes certainly it if congress does nothing about it we -- one would expect their -- pretty significant macroeconomic shock sometime next year CBO has suggested that we may fall back into recession if the entire -- is allowed to happen.
Again you know the way Washington works these days is you need to threaten it with something bad happening.
A government shutdown or government default or in this case a potential recession.
And eventually policy makers will respond to that I don't think that will happen but obviously it's concerned.
Got a long way to -- John thanks for coming on today and great report appreciate your time.
-- thanks we right.
