• Here's another 'fiscal cliff' worry: tax-filing delays

    With some investments already feeling the pain of the looming cliff, millions of Americans are at risk of being affected. The first to consider is the expiration of the Bush-era tax cuts, according to CNBC's Jackie Deangelis.

    By Allison Linn, TODAY

    If you’re the type of person who likes to file your income tax return as soon as possible, then you’ve got another reason to be frustrated by the fiscal cliff stalemate in Washington, D.C.

    Most of the tax changes being discussed as part of the fiscal cliff negotiations would go into effect in 2013, meaning that taxpayers would first have to account for them when they went to file those tax returns in early 2014.

    But a handful of the provisions under discussion could affect Americans’ 2012 taxes. The down-to-the-wire negotiations in the nation's capital could leave the IRS scrambling to adopt the changes in its systems, delaying the agency’s ability to accept some people’s returns.

    “Congress oftentimes waits until the last minute to pass legislation, and then that in a turn affects the IRS,” said Bob Meighan, vice president with tax software provider TurboTax.

    That's definitely been the case this time around. Just a few days before the end of the year, Congress has not been able to come to an agreement over a series of tax increases that are scheduled to go into effect Jan. 1. President Barack Obama said Friday that he was "modestly optimistic" a deal could still be reached to avert going over the so-called fiscal cliff. 

    Acting IRS Commissioner Steven T. Miller has already warned that there could be serious filing delays if Congress doesn’t provide a patch for the Alternative Minimum Tax. An IRS spokesman said Friday that the agency did not have any further information beyond the warnings Miller gave to lawmakers in a letter earlier this month.

    The AMT is a provision in the tax code that was designed to ensure that wealthy taxpayers have to pay at least a minimum amount of taxes. It was never indexed for inflation, however, so Congress has had to provide temporary fixes over the years to ensure that lower-income taxpayers aren’t affected.

    That hasn’t happened yet this year because of the fiscal cliff stalemate. In the letter to House Ways and Means Committee Chairman Dave Camp earlier this month, Miller, the acting IRS commissioner, warned that if Congress doesn’t provide a patch this year, then the IRS would have to make significant programming changes to account for that.

    “In that event, given the magnitude and complexity of the changes needed, I want to reiterate that most taxpayers may not be able to file their 2012 tax returns until late in March of 2013, or even later,” Miller wrote in the Dec. 19 letter.

    Miller also warned that as many as 30 million additional taxpayers could be subject to the AMT if a patch isn’t put in place.

    For now, Miller said the IRS is acting as if Congress will provide an AMT patch.

    Meighan, of TurboTax, said his company also has prepared its software as if a patch will be in place. But he said the company also is ready to switch gears quickly if it must.

    Meighan said a few other provisions under discussion as part of the fiscal cliff negotiation could affect a minority of taxpayers in 2012. Those include a deduction teachers get for school supplies they purchase for their classrooms and a tuition and fees deduction that applies to some students.

    "It's really gotten to a point now where you have the ideological divisions in the country overlapped now with the partisan divisions," said CNBC's Chief Washington Correspondent John Harwood.

    The IRS has had to ask people to delay filing their returns before. In 2010, Congress passed last-minute tax law changes on Dec. 17. As a result, the IRS said it wouldn’t be able to accept returns with itemized deductions until February of 2011 because it needed time to adjust its systems.

    If people are forced to wait to file their tax returns, that would also mean a delay in getting tax refunds. Roberton Williams, a senior fellow with the Tax Policy Center, said that in turn could have some effect on the economy because many people count on that money to pay off debt or buy big-ticket items.

    If the AMT isn’t patched at all, he noted, that would be an even bigger economic hit because some taxpayers wouldn’t get their expected refund at all.

    “That will have a major effect on the economy,” Williams said. “It will be pulling a lot of money out of the economy that people are expecting.”

    Despite the Congressional deadlock, experts say they are still assuming a deal will be made to put the patch in place.

    “For most people, come 2013 they’ll be able to file their taxes, they’ll get their refund and life goes on,” Meighan said.

     

  • Yes, we can fix Social Security (but it won't be pretty)

    By Allison Linn, TODAY

    The fiscal cliff negotiations are reviving the debate about that other financial elephant in the room: Social Security.

    Under current government estimates, Social Security could face funding shortfalls in about two decades if nothing changes. That’s because the U.S. population is aging -- and generally living longer.

    That sounds like a disheartening scenario for workers who are currently paying into Social Security and worry that they won’t get as much out of it once they retire.  About half of the Americans polled by Pew Research Center earlier this year believe it’s not likely there will be enough money in Social Security and Medicare to maintain current benefit levels into the future.

    But experts say there are ways to fix Social Security. Politicians just may not like trying to sell those changes to the American people.

    It has happened before, though. In the mid-1980s, none other than President Ronald Reagan, working with Democrats in Congress, oversaw a major overhaul of the nation’s retirement safety net.

    That’s something many say seems less likely these days.

    “There are politicians – and especially in the Senate but also in the House as well – who could work together and come to an agreement,” said Alan Auerbach, a professor of law and economics at the University of California, Berkeley. “But they’re not the majority of Congress.”

    Experts say there are two ways to fix Social Security, and neither of them are pretty: reduce benefits or increase revenue.

    Reduce benefits
    One of the few parts of the fiscal cliff negotiations that President Barack Obama and House Speaker John Boehner seem willing to compromise on involves a change in the way Social Security increases are calculated going forward. 

    The proposed switch to calculating cost of living increases using the chained Consumer Price Index instead of the current method would result in smaller annual Social Security raises. That’s because that method assumes that people change their spending habits when prices go up.

    Proponents say the switch could save billions and is a more realistic method of how Americans really adjust to rising prices.

    But opponents say the chained Consumer Price Index isn’t a good way to measure the needs of older and disabled Americans, because their expenditures are disproportionately focused on things like health care. A family of four may choose to eat more chicken if beef prices go up, but an elderly person can’t easily choose to spend less on heart medicine, they argue.

     “It’s the biggest hit on the people that couldn’t take it,” said Dean Baker, an economist with the liberal-leaning Center for Economic and Policy Research who is opposed to the measure.

    One of the longer-term options for reducing benefits is to simply tell people they have to wait longer to get their full benefits. By extending the age at which you can get full benefits, proponents argue that Social Security would be keeping up with trends toward longer life expectancies.

    But opponents, including CEPR’s Dean Baker, say that a closer look at the data shows that the bulk of improvements in life expectancies have come from wealthier Americans. They say a broad-based increase in the age at which people can get benefits would punish less wealthy Americans, who haven’t seen such big life expectancy gains.

    Andrew Biggs, resident scholar with the conservative-leaning American Enterprise Institute, argues that another option would be to dial down benefits for middle- and high-income people while maintaining the current system for the poorest Americans.

    Biggs argues that if wealthy people are told to expect less Social Security, they have more leeway to prepare for it than poor people.

    “If you cut my Social Security benefits I’m going to react by saving money and working longer,” he said. “That’s good for the economy.”

    Another option would be to reduce the Social Security benefits available to spouses. Some critics argue that’s growing outdated now that more women work and earn their own Social Security payments.

    “It’s kind of a relic from a different era,” Baker said.

    Increase revenue
    Under the current rules, the maximum taxable earnings for Social Security in 2012 is about $110,000. Some argue that an easy fix would be to simply raise the cap on Social Security taxes to include higher wages. 

    Baker, of CEPR, proposes raising the cap to around $190,000, reflecting the growing wealth at the top of the income scale. Raise it higher than that, he said, and wealthy earners will just start finding ways to dodge it.

    But others say that it’s unlikely politicians will propose raising taxes on high earners now, when many expect those taxpayers to already see increases as part of the fiscal cliff negotiations.

    “The timing of it just seems kind of awkward,” Auerbach said.

    Another option would be to add an across-the-board increase in payroll taxes that go toward Social Security. Although that would help solve the system’s future funding woes, experts say it’s also likely to be a hard sell in these tough times.

    For one thing, Americans may already be facing higher payroll taxes in 2012. For the past two years, Americans have enjoyed a payroll tax holiday that reduced the amount of money they paid toward Social Security, but that could end in the coming year.

    “I suspect that’s going to be a not very attractive option right now,” Auerbach said.

    Politicians may be nervous about proposing any reform to Social Security that costs more or results in fewer benefits, but Americans seem to accept that some changes are needed.

    About 66 percent of those polled by Pew Research Center said they would support raising payroll taxes on high-income earners, while 55 percent said they would support reducing benefits for high-income seniors.

    Just 38 percent said they’d support raising the eligibility age.

     

     

  • Warren Buffett: Raising taxes on rich won't chill economy

    Super investor Warren Buffett, the chairman of Berkshire Hathaway, speaks with TODAY's Matt Lauer about Cyber Monday sales figures, consumer confidence and the future of the American economy.

    By Ben Popken, TODAY contributor

    Raising taxes on the rich won't dampen economic growth and would "raise the morale of the middle class," billionaire investor Warren Buffett told the TODAY show Tuesday.

    Echoing a theme he has stressed often, Buffett downplayed the idea that higher taxes for the wealthy, as proposed by the Obama administration as part of a deal to resolve the "fiscal cliff," would scare off critical investment for job creation. Republicans argue that raising taxes on people in higher tax brackets would choke off investment and slow the economy at a time when it can ill afford it.

    Buffett disagrees. "No, and I think it would have a great effect on the morale of the middle class," said Buffett, in the first of two live interviews with TODAY's Matt Lauer. "They've had to watch guys like me pay below the rate by that paid by the people in my office."

    Also known as the "Oracle of Omaha" for his investing acumen, Buffett's views on the economy are widely followed, including on whether we're really going to go off the "fiscal cliff" of $500 million in tax hikes and spending cuts.

    The CEO of Berkshire Hathaway has been vocal on the economy lately, proposing in a New York Times op-ed Monday that there be a minimum tax for the wealthy.

    "I'm confident," said Buffet when asked about how he was feeling about the economy. "I can't speak for others, but at Berkshire Hathaway, we buy and sell stocks every day. America's a winner."

    Lauer brought up a recent quote from Honeywell CEO David Cote who told Meet the Press that he and others like him were feeling a lack of confidence in the political process, so much so that the uncertainty was making them keep their money on the sidelines and preventing them from making additional investments, including hiring.

    "At Berkshire Hathaway, we're investing 9 billion in plant equipment, a record, breaking last year's record. It's always uncertain," said Buffett.

    "December 6th 1941 was uncertain," said Buffett, referring to the day before the attack on Pearl Harbor. "We just didn't know it."

    When asked whether Congress would really enact a strong proposal such as the one Buffett made in his Times op-ed, which suggested setting a minimum 30 percent tax for millionaires, Buffet said, "I wouldn't be surprised. They're going to make a deal."

    Now there's a new Buffett book, "Tap-Dancing to Work" that trace his career through 80 different FORTUNE Magazine articles over the years. If there's one thing that stuck out from the timeline, Carol Loomis, FORTUNE editor, who collected and expanded the articles for the book, told TODAY, it's "how consistent he's been in his thinking. He's never changed." 

    "I couldn't be more boring," said Buffett. "I just look at the facts and wherever they lead me, I go."

    Is this the secret to Buffett's success? Lauer asked Loomis. It's hard, she said, because other investors "get emotional."

    Buffett is known for finding undervalued companies with strong fundamentals and good management. "It's simple, but not easy," said Loomis. "That's why other people can't do it. He's thinking about business 24/7."

    Lauer asked if this book was a goodbye letter of sorts. "What's it going to mean to the world when he hangs up his investing shoes?" he asked.

    Loomis said, "He will be remembered. His role in life will be remembered for the next century. I don't know whether investing or philanthropy is going to be the lead item. People are going to be reading about Buffet 100 years from now."

    About that retirement... "Got a date in mind?" Lauer asked the 82-year old businessman.

    Buffett just laughed.

    Read a free excerpt from the book Tap-Dancing to Work. 

    More money news:

    Follow TODAY Money on Twitter and Facebook

     

  • What the heck is the fiscal cliff? We have answers

    msnbc.com

    John Schoen will answer your questions about the fiscal cliff.

    Stop! Wait! No! It's a "fiscal cliff," and the country is in danger of driving over it.

    Yes, the term "fiscal cliff" has been in the news a lot lately, and you can be forgiven if you don't entirely know what it means. For starters, what's up with the name?

    New York Magazine posted their own tongue-in-cheek Q&A to help clear up the confusion. It's called, "The Absolute Moron’s Guide to the Fiscal Cliff."

    "Q: So, first things first: What is a “physical cliff”? 

    A: It’s fiscal. As in, relating to government finances."

    Ahh, that makes a lot more sense. Now why again is it such a big deal?

    Fear not, this Wednesday from 12-1 p.m., economic reporter John Schoen will host a live chat to help explain it all. No matter how dumb you think your questions are, John will answer them. 

    For homework, you may want to read these stories: