Right now till end of the year the Fiscal Cliff is the focus on the hill. Republicans control the House and Democrats got the Senate. The Fiscal Cliff is referred to as the Bush 2001-3 tax cuts expiring 12/31/2012, the Alternative Minimum Tax patch expiring 12/31/2013 and the sequestering of spending which comes into effect 12/31/12 which leave over 1000 governments programs facing spending cuts. Payroll taxes will also return to 6.4% versus the 4.4% we see today.

Obama’s goal is to let the Bush-era tax cuts expire and return to the Clinton-era tax policies. That change would raise top tax rates to 36 percent and 39.6 percent, would treat tax dividends as ordinary income, would tax capital gains at a top rate of 20 percent and would reinstate limits on itemized deductions and personal exemptions. Obama has also said he will veto exemptions for families earning more than $250,000 but would like to keep tax cuts in place for the middle class. Interestingly enough this will affect CA, NJ and NY the most as they have the largest number of families with $250,000 plus in income. Meanwhile, Obama may want $3.5M exemption on estate tax with 45% thereafter vs the Clinton Era $1M estate tax with 55% thereafter.

Meanwhile, Private Equity may see their tax double on their carry. Carry and management fees are mainly stipulated by realty funds according to Carlyle founder Rubenstein’s comments at Bloomberg Monday Nov. 12th. However, they could see their tax double as capital income on carry would be taxed as ordinary income.

Obviously no immediate effect will be felt as the New Year passes since the changes won’t be due until year end 2013 but the deadline is New Year’s Eve 2012.

Obama has plenty on his plate on the JOBS Act but the Fiscal Cliff gives him an upper hand. Now Congress has to come to Obama to cut a deal. Maybe it is time to bite the bullet and not defer tax increases and fiscal policy budget cuts any further.

If ever, now would be the time – or what deal will Obama cut? What does he want the most?