By Deanna C. White
President Barack Obama has won his reelection bid, handily defeating former Massachusetts Governor Mitt Romney in the Electoral College and winning the popular vote as well.
But with Congress still split along partisan lines following the election - Republicans have retained control of the House, while Democrats maintained control of the Senate - it's uncertain whether President Obama will be able to marshal the bipartisan spirit needed to address two of the most pressing issues on the American economic front: long-term tax reform and the immediate concern of the looming "fiscal cliff."
In the post-election afterglow, most players quickly moved to position themselves into a seeming bipartisan stance on both issues.
In his acceptance speech, President Obama emphasized America's unity over the divisiveness that sometimes marked the campaign and created Congressional gridlock during his first administration.
"I believe we can seize this future together because we are not as divided as our politics suggest. We are not as cynical as the pundits believe", President Obama said. "We are greater than the sum of our individual ambitions, and we remain more than a collection of red states and blue states."
Senate Majority Leader Harry Reid (D-NV) promised to "put politics aside and work together to find solutions", in a statement issued on his website. "The strategy of obstruction, gridlock, and delay was soundly rejected by the American people. Now, they are looking to us for solutions."
On Wednesday afternoon, House Speaker John Boehner (R-OH) issued a statement on the fiscal cliff. Boehner struck a conciliatory note, promising to work with President Obama on the issue. "Mr. President this is your moment. We are ready to be led. Not as Democrats or Republicans, but as Americans", Boehner said.
But Boehner also rejected one of the cornerstones of the President's tax reform plan: raising taxes on higher-income Americans. Boehner said Republicans would be willing to accept an increase in tax revenue if it were tied to tax and entitlement reform and reduced spending.
It's clear some type of bipartisanship will be critical in the next two months, as the sitting electorate strives to find a solution to the looming fiscal cliff poised to hit Americans squarely in the pocketbook unless Congress acts to avert it by the end of the year.
A wide array of tax credits and cuts, which were mostly enacted during the Bush administration, are set to expire December 31, 2012, unless Congress takes action soon. If not renewed, those credits and cuts could cost households an average of $3,500 in higher taxes next year. According to the Illinois CPA Society (ICPAS), the following would have the most negative impact on American's wallets:
- Child Tax Credit - Parents will face a 50 percent cut to the Child Tax Credit amount, from $1,000 to $500. Other benefits, including Alternative Minimum Tax (AMT) relief, will disappear.
- American Opportunity Tax Credit - As this credit expires, it will be replaced by the Hope Credit, which has narrower eligibility requirements.
- Payroll Tax Holiday - In place for the last two years, this provision helped put more cash in consumers' pockets in an effort to boost the economy. Workers will see a 2 percent tax increase in their Social Security withholdings.
- Marriage Penalty Reduction - The tax bracket thresholds for married couples filing jointly will increase.
- Earned Income Tax Credit - Ending in 2012, there's no replacement credit.
- Capital Gains Increase - Individuals and business owners will see rates rise from 15 percent to 20 percent, and dividends will be taxed at ordinary income rates. There's also the potential for additional taxes related to the new Medicare surtax on investments.
The ICPAS says both single and joint filers could also see tax bracket rates increase in 2013, no matter where their AGI falls on the schedule.
Despite politicians' promises to reach across the aisle, some CPA analysts are questioning whether the professed spirit of cooperation between parties will be enough to bolster any significant change - at least in the short term.
Larry Evans, tax technical resource leader for Eide Bailly LLP, said Boehner's recent comments on the Republican Party's reluctance to raise taxes seem to hint at the great divide still remaining among members of Congress who either don't want to raise taxes on wealthy households at all, or, at least want to raise President Obama's proposed threshold defining those deemed "wealthy."
"We're exactly where we were prior to the election", Evans said. "We still have the same resistance on both sides."
Evans also questions whether a Congress already divided on tax reform issues will be able to create any type of meaningful, long-term solutions to the impending fiscal cliff issues by the December 31deadline.
"There's still such a partisan divide on so many of these (taxation issues), it will be very difficult to get things moving and get things done in such a short period of time", Evans said. "If that happens, the cliff becomes much more of a reality than it otherwise might be. It may become much more of an item that CPAs have to plan for than what we would like."
Instead, Evans said, he believes it's more likely Congress' immediate solution to the fiscal cliff crisis will involve a fiscal version of "kick the can" - i.e., politicians will ask for more time to deal with the issue.
"They won't immediately put in a long-term fix, but because it's in everyone's best interest, Congress will move the problem down the road for a short period of time", Evans said. "I just don't believe they'll be able to come to any major realization before the end of the year."
In essence, it's the same solution Boehner raised on Wednesday. According to a CBS News report, he proposed a short-term agreement to "avert the cliff in a manner that serves as a down payment on - and a catalyst for - major solutions, enacted in 2013, that begin to solve the problem."
Boehner also acknowledged it would be impossible to solve the problem of our fiscal imbalance "overnight" or "in the midst of a lame duck session of Congress."