Now that the national elections are history, attention in Washington is firmly focused on the “fiscal cliff”: the day of reckoning created by the congress during the budget ceiling debate in the summer of 2011. When the Super Committee failed in its mandate to create a plan to address the deficits and the national debt, the result was the misnamed Budget Control Act of 2011 which, in current parlance, kicked the can to December 31, 2012. All that act did was to raise the debt limit immediately by $400 billion, thus averting a government shutdown, while allowing further increases in the debt limit without another congressional confrontation with the White House. The tradeoff was the promise of spending cuts in the future.
That future is now.
If nothing is done, and the economy runs off the so-called fiscal cliff, the impact will be a combination of $7 trillion worth of tax increases and spending cuts over the next decade.
There will be automatic spending cuts of $120 billion annually in both defense and non-defense spending, there will be increases in income and capital gains tax rates, the reestablishment of the so-called “death tax” (the estate tax), 27 million households will now be subject to the “wealth tax” under the Alternative Minimum Tax (AMT), while those enjoying the payroll tax “holiday” will see their Social Security withholding taxes return to the 6.2% rate from the current temporary 4.2% rate. There would be the confluence of another flurry of other tax increases and spending cuts as well, including 27% cuts to Medicare providers and at least four other tax increases imbedded in Obamacare.
According to the Heritage Foundation, the fiscal cliff will cost families making $70,000 a year more than