If no bill passes in the next 10 days ...

Nancy Pelosi's Unwelcome Christmas Gift


Since neither Mr. Obama nor Mr. Reid seem willing to force her to back down, Congress could go home without stopping the largest tax increase in the nation's history.

If that happens, every worker will receive a smaller paycheck in the New Year. This will happen regardless of what action the new Congress takes—because the Treasury Department must very soon send employers and payroll processers instructions for 2011 tax withholding. If no bill passes in the next 10 days, the Treasury Department will have to assume the Bush tax cuts expire and order more withheld from everyone's pay.

The impact would be dramatic. H&R Block's Tax Institute, for example, has estimated that a married couple earning $80,000 will receive $221.48 less in each bimonthly paycheck starting in January, just when Christmas bills show up.

Then there are the households—as many as 27 million—that the Congressional Budget Office says may get walloped by the Alternative Minimum Tax if it is not adjusted to exempt middle-class earners.

Congress normally enacts a so-called patch to the AMT early in the calendar year. But this year Mr. Obama and the Democratic Congress dawdled. Even if the new Congress patches the AMT in January, Internal Revenue Service Commissioner Douglas H. Shulman warns that one of every six taxpayers may be prevented from filing returns early or getting timely refunds as his agency scrambles to gear up for the change.

Taxpayers could end up forking over tens of billions that they'll eventually get refunded once the IRS sorts it all out—but in the meantime consumer spending, job creation and the economy will take a hit.

If Congress fails to act on the expiring Bush tax cuts, the new GOP House majority that takes office Jan. 4 will immediately act to extend the Bush tax cuts, retroactive to New Year's Day. It will also patch the AMT to protect taxpayers' 2010 earnings. The Republicans' bill will likely gain Senate passage and Mr. Obama's reluctant signature.

But it will take weeks to reprogram payroll computers and months to work through the IRS's difficulties. That's a bad way for the economy—and the president—to start the year.

Comment: Prediction .... Gridlock with the lame duck congress!

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