Taxmageddon - Is This What the Mayans Predicted?

Interesting article in the Washington Post titled "'Taxmageddon' looms at end of payroll tax holiday." Basically it highlights the concern I addressed in the February 14 post "Fiscal Stimulation" that the economic outlook includes significant tax increases in 2013. Here is a summary of tax increases on January 1:

- Tax rate rise on investment income, estates and gifts, and earnings at all levels
- Marriage penalty for joint filers returns
- Value of the child credit drops from $1,000 to $500
- Tax rate everyone pays on the first $8,700 of wages jumps from 10 percent to 15 percent
- Social Security payroll tax goes up to 6.2 percent from 4.2 percent
- Medicare taxes under health-care initiative will begin to impact high-income households

In addition, the automatic spending cuts also begin in 2013.

Both Democrats and Republicans appear to be preparing for the battle. Given it is a Presidential election year, I expect a vicious tax and spend debate starting in the summer. I do not believe the market has fully digested the impact of the potential removal of fiscal stimulus, or at least is waiting for politicians to address it. Either way, by about June of this year I expect the market to begin focusing on the issue and its potential impact to the markets.

For all the dooms day prognosticators out there, Taxmageddon does closely coincide with the end of the Mayan calendar on December 21, 2012. At least we won't need to buy Christmas presents this year.