''Taxageddon'' Looms, Congress Mulls Action

The scheduled return of the pre-Bush era tax rates could do significant damage to the emergent housing turnaround, via an increased marriage penalty, a reduced mortgage interest deduction and tax increases on individuals and small businesses.

Congressional leaders from both parties are considering measures to delay automatic spending cuts scheduled for the end of this year until March 2013, in an effort to prevent the economy from lurching back into recession.

The spending cuts, totaling $1.2 trillion over the next decade, have earned the nickname ''Taxageddon'' when combined with the expiration of the extension of the Bush-era tax rates also due at the end of the year.

Lawmakers are likely to warm to a postponement of spending cuts, which would put off a potentially ugly and unpopular negotiation with dire economic consequences until after the November elections.

Though Congress is likely to act, the National Association of Home Builders (NAHB) studied the possible effects of ''taxageddon'' on the housing market. The forecast from the Congressional Budget Office, which said the government and economy could ?EUR??,,????'??go over a fiscal cliff?EUR??,,????'?? if appropriate steps are not taken, has GDP growth falling from 4.4 percent in 2013 to just 0.5, which could even go negative if nothing is done.

Expiration of the Bush tax rates passed in 2001 and 2003 would essentially be a business tax on homebuilders and the construction industry, the NAHB said, as both capital gains taxes and individual tax rates ?EUR??,,????'??? which includes small businesses that file as individuals ?EUR??,,????'??? would increase. A loophole in the Alternative Minimum Tax would also close, making roughly 25 million more individuals eligible to be taxed under that statute. The top estate tax rate would also increase to 55 percent, threatening multigenerational businesses from staying in the family.

The conventional wisdom dictates that Congress will approve a stopgap measure before the spending cuts and tax increases threaten, but the timetable for such action is still uncertain.