TPC’s New Tax Calculator Examines Fiscal Cliff Options

By :: November 28th, 2012

As a lame-duck Congress once again faces an impending deadline for dealing with expiring tax cuts, TPC has released a new Tax Calculator to compare potential outcomes. We obviously don’t know what the outcome of negotiations between Congress and the White House will be but have modeled four possibilities:

  1. 2012 tax law (with an AMT patch). This is what you’re paying this year, assuming Congress gets around to patching the alternative minimum tax for 2012.
  2. 2013 tax law. This is what you’ll pay if Congress doesn’t act and we go over the fiscal cliff for all of next year.
  3. The Senate Democratic plan, which would extend the expiring Bush-era income tax cuts for a year for all but the top 2 percent of taxpayers and extend the credits originally enacted by President Obama in 2009, but allow the temporary payroll tax cut to expire.
  4. The Senate Republican plan, which would extend the Bush-era income tax cuts for everyone, but would allow the 2009 credits and the temporary payroll tax cut to expire.

(More details on these plans, including their treatment of the AMT and estate taxes, are available here.)

To make things easy, you can look at ready-made examples or create your own case.

a non-elderly childless couple

a couple with a child in college

a couple with two children under age 13

a single person

a single mother with two children

a couple over age 65

The four possibilities in the calculator all focus on what happens to the known components of the cliff. Policymakers are also discussing additional ideas. We will try to add these as time and interest allow. In the meanwhile, you may be able to tweak the inputs to the calculator to see what would happen. To see the effect of capping or eliminating itemized deductions, for example, you can start with one of the example taxpayers and reduce or zero out the input values for some or all of their deductions.

Check out our new calculator and see how the different tax plans would affect real families.


  1. Michael Bindner  ::  4:27 pm on November 28th, 2012:

    The unknown factor is whether business responds to higher tax rates with wage increases in order to keep employees happy. I still maintain that current dividend rates and capital gains rates incentivize labor cost savings and CEO bonuses. Including that would be the kind of dynamic model the GOP would run away from, but I suspect it has some basis in fact.

  2. AMTbuff  ::  7:23 pm on November 28th, 2012:

    Michael, some degree of that response is guaranteed. Second earners in high-income families are especially likely to reduce their hours or quit as tax rates increase. Reduced labor supply means higher wages will be needed to attract replacements.

    If tax rates are increased to high levels, especially on capital gains, I predict that progressives will be shocked at the magnitude of the reduction in reported taxable income. As baby boomers near retirement, a 60% marginal rate will convince many of them (the ones who have enough retirement savings) to retire a few years early. Similarly a 40% marginal rate on capital gains will convince many investors not to sell until rates get lower, or not to sell at all and make gifts or bequests.

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