The fiscal cliff’s tax increase is $536 billion high, according to a new, nonpartisan analysis released on Oct. 1 by the Urban Institute and the Urban-Brookings Tax Policy Center. Adding up to nearly $3,500 per household, taxes would rise by that much in 2013 if Congress and the White House don’t do something to change the course of policy. It would raise federal tax collections by a fifth from what they would have been without the cliff. The study—”Toppling Off the Fiscal Cliff: Whose Taxes Rise and How Much?”—doesn’t analyze the automatic-spending-cut part of the fiscal cliff, which amounts to more than $100 billion in 2013. The combination would be enough to knock the entire, fragile U.S. economy back into recession, estimate many economists.
The truth is that Washington probably won’t allow all the tax increases to take effect. On the other hand, it probably will let some of them take effect. So the cliff’s effect will be less than half a trillion dollars but greater than zero. The study’s authors—Roberton Williams, Eric Toder, Donald Marron, and Hang Nguyen—have provided a public service by breaking the cliff down into nine stages. Think of them as ridges on the way to the valley floor.
Here are the study’s estimated increases in 2013 revenue from various changes, starting with those that are highly likely to occur and ending with the ones that are least likely to occur. All involve expiring tax breaks, except for the second on the list—the tax increases embedded in the Affordable Care Act. Numbers are rounded.
Payroll tax: $115 billion
Health-care law provisions (new taxes): $24 billion
High income capital gains and dividends: $8 billion
High income rates and exemption and deduction phase-outs: $44 billion
Stimulus legislation’s earned income tax credit, child tax credit, and American Opportunity education tax credit: $27 billion
Extenders (temporary cuts, mostly for business): $75 billion
Estate tax: $31 billion
Remainder of 2001-03 tax provisions: $171 billion
Alternative minimum tax patch: $40 billion
TOTAL: $536 billion
It’s worth noting that the order in which these are listed affects the dollar amounts. The (unlikely) expiration of the alternative minimum tax patch would generate a lot more revenue if it were counted first. For example, the AMT is designed to make sure that people can’t take advantage of tax breaks to completely avoid any tax liability. If other taxes are raised first, there’s less left for the AMT to catch.