Residents could see higher taxes, if Congress doesn't act.
Many of us know that if Congress fails to act, the nation will start falling off the "Fiscal Cliff" come January 1st, and it looks like the wealthiest states, including Maryland, could be negatively affected. That's according to the Tax Foundation, a non-partisan research foundation that has monitored fiscal policy at the federal, state and local levels since 1937.
"In Maryland, it's hit particularly hard by the AMT issue. So one of the components of the 'Fiscal Cliff' is the potential lack of a 'patch' to the Alternative Minimum Tax," says Nick Kasprack, an analyst with the Tax Foundation. The organization says if federal lawmakers don't put the "patch" in place, the AMT exemption levels would revert to what they were 12 years ago. "Every year, Congress changes the AMT parameters around so that it doesn't hit more people. They haven't done that for 2012, let alone 2013. So this could affect people as soon as next April, when they file their taxes."
The "Fiscal Cliff" resulted in 2011, when Congress was considering an increase in the debt ceiling. In the past, such votes were routine, but there were lawmakers who wanted spending cuts before they would vote on raising the debt ceiling. A measure passed by Congress says if members of the House and Senate don't come to agreement with the President on avoiding the "Fiscal Cliff," tax increases and spending cuts will take affect on January 1st, 2013.
As of this date, lawmakers have not come to an agreement. Democrats want the Bush-era tax cuts to continue for all but those making more than $250,000 annually. Republicans want to keep the tax rates for everyone. Economists have said that if no agreement is crafted, the nation could slip back into recession.
Kasprack says citizens will see it in their first paycheck in 2013 if nothing is hammered out. "The first thing people will notice is that the withholding in their paycheck is going to change," he says. "If the Bush tax cuts are not extended, then the IRS is going to set the new withholding rates higher. So immediately what people are going to notice is that there's less money in their paychecks."
And, Kasprack says, citizens may not get refunds when they file their income tax returns in the spring. "Suddenly, they're going to owe $2,000 instead of getting $2,000 back in April. I think that's going to take a lot of people by surprise, and I think it's going to make a lot of people angry."
Kasprack also points out that a family which earns $106,000 a year will be paying an extra $7,000 annually in taxes. "$2,400 will come from the Bush tax cuts; another $2,600 comes from the AMT issue; another $2,000 from the payroll tax. It all adds up. A lot of stuff is going to happen next year if nothing gets done," he says
The Tax Foundation says other wealthy states that will be hit hard if nothing is done about the "Fiscal Cliff" are New Jersey and Connecticut. Some low income states that will also be hurt if this situation isn't resolved by January 1st are Arkansas, Mississippi and West Virginia.