Sequestration likely; more will pay alternative minimum tax

Sequestration likely; more will pay alternative minimum tax

Theres a 60 percent chance Congress will not reach an agreement to avoid the fiscal cliff January 1, and sequestration – the deep and automatic cuts in federal agencies – will occur. So said budget expert and managing director of Qorvis Communications Stan Collender at a post-election summit sponsored by Councilor, Buchanan, & Mitchell, an accounting firm and WANADA kindred line member that works with dealerships and other businesses.

The cuts wouldnt have an immediate effect, but in the federal government, operations and maintenance civilians and defense contractors would be affected about a month later. The most likely scenario is that Congress will resolve the standoff in the first few weeks of the year.

Dont expect the grand bargain on the national debt that some have talked about, Collender said. In the next few years, we will likely see similar cliffhanger events. And when the debt ceiling comes up for debate March 1, Congress will raise it. Wall Streets been pushing hard to avoid a fight again, said Collender.

Another problem that could occur next year is a dramatic increase in the number of people paying the alternative minimum tax, said John McKinnon of the Wall Street Journal. The AMT has never been indexed for inflation, and each year Congress has passed a patch to keep the number of AMT payers from expanding.

Without another patch, scores of unsuspecting taxpayers will get an unwelcome 2013 tax hike. How many? The number of taxpayers paying AMT now is four million, which goes to 33 million if Congress fails to act. That will dramatically and negatively affect consumer confidence, McKinnon said.