Working Americans would continue to see smaller paychecks. Jobless Americans would continue to go without unemployment insurance.
Meanwhile, hundreds of thousands of doctors who care for elderly patients would see their payments shrink by about 30 percent. Each year since 1997, when a law intended to slow health-care spending was enacted, Congress has voted to temporarily boost payments to doctors. If Congress does not act, the payments would reset to a much lower figure. This year, the “fix” is tangled up with negotiations on the fiscal cliff.
While the lower reimbursement would technically kick in on Jan. 1, Medicare is expected to be able to postpone the reduction in reimbursements for about two weeks, according to people familiar with the matter.
Then, as middle-class Americans begin to file their tax returns in late January and February — perhaps in hopes of an early refund — they’d have a rude awakening. Millions would find themselves subject, for the first time, to the alternative minimum tax, designed to ensure that wealthier Americans do not use deductions to avoid paying the basic minimum in taxes. But because of the way the AMT is structured, it would also affect millions of middle-class Americans — unless Congress “patches” it, which it has done every year.
In a recent letter to Rep. Sander M. Levin (Mich.), ranking Democrat on the House Ways and Means Committee, acting Internal Revenue Service Commissioner Steve Miller said that if the AMT is not patched, 60 million taxpayers may not be able to file their tax returns or receive refunds until the IRS overhauls its systems.
“Because of the magnitude and complexity of the changes, it is entirely possible that these taxpayers would not be able to file until late March 2013, if not even later,” he wrote. “Tens of millions of these taxpayers would unexpectedly have to pay additional income tax for 2012, leaving them with a balance due return or a much smaller refund than expected. For millions of other taxpayers, refunds would be delayed.”
(Americans, particularly the rich, will also have to grapple with other tax increases, such as those on investment income.)
As Americans deal with exasperating tax changes, federal agencies would begin carrying out tens of billions of dollars in spending cuts.
In the first week of January, the White House would submit a report to Congress detailing line by line how much each department and program would be cut.
The government would not look dramatically different — for a few weeks. Most agencies would continue spending, but with caution, likely eliminating travel and training and slowing or halting hiring.