WASHINGTON – After the November 6 elections, Congress and the White House will face tough decisions on tax rates, tax breaks and budget cuts in a convergence of high-stakes deadlines that Federal Reserve Chairman Ben Bernanke dubbed a 'massive fiscal cliff.'
The most urgent U.S. economic issue will be finding a way down from the 'fiscal cliff' without plunging the U.S. economy over the edge.
Failure to safely negotiate it could trigger another recession, economic studies have forecast. Here are key deadlines and issues facing lawmakers:
If Congress does nothing, the income tax brackets will change to 15, 28, 31, 36 and 39.6 percent, from the present levels of 10, 15, 25, 28, 33 and 35 percent.
Obama wants to extend the Bush rates for everyone, except for annual income that rises above $200,000 per individual, or $250,000 per family. For income above that $200,000/$250,000 threshold, he backs a return to the higher, pre-2001 tax rates.
Republican presidential nominee Mitt Romney wants to preserve the Bush-era income tax rates on all income levels.
If no action is taken, the long-term capital gains tax rate will rise to 20 percent from 15 percent for the top four tax brackets. At the bottom, they will rise to 10 percent from zero.
Obama wants to let the capital gains tax rise to 20 percent from 15 percent for income above the $200,000/$250,000 level. Tax on gains below that would still top out at 15 percent.
Romney wants to keep the 15-percent gains tax cap for high-earners and end the tax entirely for income below $200,000.
Without action from Congress, the dividend tax rate will rise to the ordinary income tax rates for each tax bracket, or as high as 39.6 percent for top earners. Dividends are now taxed at 15 percent for the top four brackets and zero at the bottom.
Obama would hold the 15 percent dividend rate cap for most people, but let it rise on income above the $200,000/$250,000 threshold, to the 36 percent or 39.6 percent rates.
Romney wants to eliminate completely the dividend tax on individual income below $200,000, while preserving the Bush top rate of 15 percent on income exceeding that.
Obama wants to raise the tax to 45 percent, with a $3.5 million exemption; Romney wants to eliminate the tax completely.
Now lawmakers fear the cuts, known as a "sequester," could harm the economy and many are working to prevent them.
Treasury Secretary Tim Geithner has said the United States will likely hit its $16.4 trillion borrowing limit after the presidential elections, but before the end of the year.
Geithner has said the Treasury has tools to push out that deadline some time into early 2013 and analysts expect these measures could last until sometime in February. That could force the Treasury to again use special accounting measures to delay the increase, which could draw further attacks from Republicans. After months of drama that exasperated voters and markets, Congress in August passed a deal to raise the ceiling. (Additional reporting by Richard Cowan; Editing by Stacey Joyce)