Fiscal Cliff Just Days Away and John Boehner Extends His Vacation

As the time to avoid the approaching fiscal cliff can now be counted in hours, President Obama and the Senate returned to Washington to resume work Dec. 27. The House of Representatives, however, will not return until Dec. 30—only 30 hours before the deadline. At this point, it’s hard to imagine that House Speaker John Boehner and other legislators are taking matters seriously by extending their holiday vacations when the nation’s economic future hangs in the balance.

The fiscal cliff has been the hottest topic in the news since the end of the presidential election. Unless you’ve been living under a rock, by now you are well aware that without legislation on Jan. 1 $500 billion in tax increases and $200 billion in spending cuts will go into effect. But what does that mean to the average American? For starters, $700 billion is equal to about 4 percent of the total U.S. gross domestic product—more than enough to send the nation into another recession, according to the Congressional Budget Office.


Taxes, taxes, taxes. They are going up without a resolution. But exactly how much and for whom? According to the Tax Policy Center, going over the cliff will affect about 88 percent of U.S. taxpayers, and their taxes will increase an average of $3,500 a year. For starters, the Bush-era tax cuts, passed in 2001 and 2003, reduced individual income tax rates, estate taxes and capital gains taxes. They also expanded certain tax credits, including the child tax credit. These tax breaks, worth about $203 billion per year according to the Economic Policy Institute, will expire Dec. 31.

The 2009 stimulus also included expansions of tax credits, particularly the Earned Income Tax Credit, which helps out low-income workers, as well as the child tax credit and the American Opportunity Credit, which assists families paying for college tuition. These tax breaks cost about $10 billion per year. Without them, about 25 million Americans will lose an average of $1,000 a year in 2013, and about eight million children will either fall into or sink deeper into poverty. Without an extension of these credits, a single mother who works full time will see her child tax credit drop from $1,725 to just $165.

The payroll tax holiday is also set to expire. Passed in December 2010, it reduces payroll taxes from 6.2 percent to 4.2 percent. Extending it will cost $115 billion in 2013, but allowing it to expire will mean about 125 million households earning less than $50,000 a year will take home about $1,000 less.

Higher wage earners will also be impacted by a fall off the cliff. The alternative minimum tax is set to expire as well, forcing about 28 million Americans earning between $100,000 and $500,000 a year to pay the alternative minimum tax when they file their 2012 returns. Although the alternative tax is designed to apply to 1 percenters whose tax breaks may reduce their tax liability below what is considered a fair share, it generally does not work out that way. Instead, multimillionaires still escape the alternative minimum tax, and taxpayers lower down the income scale end up paying, unless Congress vote to exempt them. Extending the alternative minimum tax will cost about $114 million.

Spending Cuts

Then there’s the spending cuts. Falling off the fiscal cliff will trigger four basic types of cuts next year. The first, known as the sequester, cuts physician and other provider’s Medicare payments by about 2 percent. It also cuts all discretionary spending—expect programs designed for low-income Americans—between 7.6 and 9.6 percent. The cuts are divided equally between defense and nondefense programs. The sequester was mandated by the Budget Control Act of 2011, also known as the debt ceiling compromise, and the cuts amount to about $110 billion in 2013.

Also included in the 2011 Budget Control Act were budget caps that set a firm limit on federal discretionary spending. The caps are set to reduce spending in 2013 by $78 billion.

Another $14 billion in spending cuts relate to the Sustainable Growth Rate, which requires that provider payment growth does not exceed growth in gross domestic product. The policy, called a Doc fix, reverses temporarily cuts that Congress passed as a means of deficit reduction in 1997. For the past 15 years, every Congress has passed a Doc fix, and if it is not extended with the cliff, physician payments will fall by almost 30 percent.

The final piece of spending cuts set to take effect is the termination of federal unemployment insurance, which was expanded following the recession and has been extended regularly as economic recovery has lagged. Should the program cease, about two million Americans will immediately lose weekly benefits averaging $290. Another million will be cut off by the end of the first quarter in 2013. Extending the program will cost $39 billion.

There’s a lot at stake, and although Americans are on the edges of their seats, the House is still on vacation. President Obama has called Congressional leaders, including Boehner, to meet Dec. 28 and try to work out a last-minute deal. Boehner, on the other hand, seems already resigned to missing the deadline—he warned fellow House members they may be working through Jan. 4.

Senate Majority Leader Harry Reid, previously optimistic, now accuses Republicans of “watching movies” as the fiscal crisis deepens and says the deadline will likely be missed.

“It looks like that’s where we’re headed”, he said on the Senate floor on Thursday. “The American people are waiting for the ball to drop, but it’s not going to be a good drop.

“I have to be honest: I don’t know, time-wise, how it can happen,” Reid added. “I would hope that the speaker and the Republican leader here in the Senate would come to us and say: here’s what we think will work.”

Unfortunately for American taxpayers, it’s just a lot of rhetoric and little action.