After watching voters leave the status quo in place in last week's elections, the House and Senate return to work on Tuesday with a very full plate of legislative work ahead, but no clear road map on how to deal with a series of expiring tax laws and billions in automatic budget cuts.
Both sides laid down a series of markers last week in the wake of the elections, as Democrats argued for allowing lower tax rates to expire on higher-income earners, while Republicans chafed at the idea of voting for higher tax rates of any kind.
First, let's set the stage for what is involved in this political dispute.
If nothing is done by the Congress before the end of the year, a host of different taxes would change on January 1, 2013, bringing in $514 billion in annual revenue.
Among the highlights:
* Federal income tax rates would go back to where they were in the Clinton Administration; the 10% bracket would go away, and all other rates would go up. The Bush brackets are 10%, 15%, 25%, 28%, 33% and 35%; the old Clinton rates are 15%, 28%, 31%, 36% and 39.6%.
* The Marriage Penalty would return, so that couples who file jointly would not get the same value of a standard deduction as two single tax filers
* The Child Tax Credit would drop from $1,000 to $500
* Estate taxes would again go to 55%; the exemption would drop back to $1 million from over $5 million
* Taxes on dividends would go from 15% to the tax rate that applies to your income.
* Capital gains taxes would go to 20%, plus a possible 3.8% cap gains levy on some high income earners that is part of the Obama health reform law. That same 3.8% tax would apply to dividend income as well for those at the top end.
* The phaseouts for personal exemptions would return and certain high income earners would also see their deductions limited.
One reminder about semantics - when you hear people fighting over whether to call these the Bush tax rates or the Bush tax cuts, remember that there is more than just tax rates involved here, because the expiring of the Bush tax laws from 2001 and 2003 involve more than just income tax rates.
So, you will hear me say the "Bush tax cuts" and the "Bush tax rates."
Another reminder - there is also a lot more involved with the fiscal cliff in terms of tax policy than just the Bush tax rates/tax cuts.
Also expiring at the end of 2012:
* The Social Security Payroll tax holiday approved the last two years by Congress, which costs about $120 billion per year
* A patch to keep the Alternative Minimum Tax from hitting more taxpayers
* A series of business and personal "tax extenders" like provisions that give residents of states without income taxes (Florida, for example) the ability to write off state sales taxes on their federal tax form; they also include tax breaks for NASCAR race tracks, a popular research and development tax credit and more.
* Business expensing tax provisions that were part of the Stimulus law
Along with the automatic changes in tax provisions, the beginning of next year would see automatic budget cuts in both defense and domestic accounts.
Those cuts were put in place when the Congress last year was unable to agree on how best to reduce the deficit; it would require $1.2 trillion in budget reductions over ten years.
The initial cuts would be 9.4% in most defense accounts and 8.2% from most domestic spending accounts.
Let's make one thing clear - even with these automatic "cuts" - the size of the federal budget in terms of spending would still go up every year.
And neither party has a plan that would balance the budget any time soon.
Most likely, Congress will only balance the budget by accident, as happened during the Clinton years, when a big tax increase was followed by a big economic expansion fueled by the dot-com boom.
