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:
*Bush ordinary income tax cuts. On December 31, low individual income tax rates enacted in 2001 under former President George W. Bush are set to expire. President Barack Obama and Republicans extended them at the end of 2010 for two years.
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.
*Bush investment income tax cuts. Bush and Congress in 2003 cut taxes on capital gains and dividends, which mostly affect high-income taxpayers. These cuts are set to expire at year-end.
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 healthcare tax. Regardless of what happens with the fiscal cliff, investment income above $200,000/$250,000 will be subject to a new 3.8 percent tax under Obama's health care law.
*Alternative minimum tax. The AMT - which ensures rich people pay some tax - expired at the end of 2011. That has not had an impact yet because 2012 tax returns have not been filed. The tax is not indexed for inflation. So it is routinely "patched" to prevent tens of millions of upper-middle-class taxpayers from having to start paying it. Both Republicans and Democrats agree on the need for another patch soon.
*Tax extenders. Dozens of individual and business tax breaks expired at the end of 2011, including the popular research and development tax credit. There is wide support for extending them again, but businesses will be watching for any faltering.
*Payroll tax. A cut in the payroll tax that funds the Social Security pension program was extended earlier this year, in an effort to boost the economy. The current 4.2 percent rate paid by about 160 million workers, down from the previous 6.2 percent rate, expires on December 31. Bipartisan support for letting the tax cut expire seemed solid on Capitol Hill weeks ago, but may be softening among some Democrats who are talking about extension.
*Estate tax. The estate tax, which applies to assets passed onto heirs, currently stands at 35 percent, after an exemption level of $5 million. With no action, the tax will rise to 55 percent, after excluding the first $1 million of value.
Obama wants to raise the tax to 45 percent, with a $3.5 million exemption; Romney wants to eliminate the tax completely.
*Automatic spending cuts. In a deal last year to raise the federal debt ceiling, Obama and Congress agreed to $1.2 trillion in across-the-board cuts in federal programs if lawmakers failed to reach a deficit-cutting deal by January 2. They failed.
Now lawmakers fear the cuts, known as a "sequester," could harm the economy and many are working to prevent them.
*Unemployment benefits. Millions of people have been exhausting their government jobless benefits during the economic downturn. Congress has extended the benefits several times. Another deadline comes at year-end. Many Republicans want the extensions to stop, saying they discourage job-hunting.
*"Doc fix." Because of an outdated formula in the law, government payments to doctors who treat patients on Medicare, the U.S. health program for the elderly and disabled, are routinely underestimated. If Congress doesn't fix the situation by the end of the year, these doctors face a double-digit cut to their payments, which could lead them to drop Medicare patients.
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)