Avoided One Cliff, Looking at Possibly Three More

Avoided+One+Cliff%2C+Looking+at+Possibly+Three+More

Liz Berndt, Staff Writer

The Compromise 

Congress compromised on the tax plans for the wealthy. Democrats, previously promising a tax increase on households earning $250,000 a year or more, have agreed to push the number higher. Now, households earning over $450,000 will be taxed. This goes against Obama’s campaign promise to tax the top 2 percent of the country. There will be caps on some deductions for individuals making over $250,000 and married couples making over $300,000. Obama admits these caps will not be enough to close the deficit and taxes will have to increase across the board.

A Future of Cliffs

In the coming months, the United States will face three more potential fiscal cliffs. The “Compromise” left two major issues:

The Debt Ceiling: Deadline: Late Feb./ Early March

In 2012 the United States spent over a trillion dollars more than it took in, greatly adding to the the national debt. In the early 1900’s the debt ceiling was created to allow Congress to spend more, to maintain national credit and to give the executive branch greater control of the economy. Congress decided on a cap that the United States debt could not pass.

Deficit spending is a common way for presidents to create economic growth. In the current recession President Obama is practicing this philosophy. The debt ceiling is in place to stop spending and automatically enact cuts if the debt becomes too large.

The argument is: what is too much debt? Congress can vote to increase the debt ceiling, but many worry this will create a gap between the Gross Domestic Product (how much money the United States generates every year) and their debt that will be unconquerable and possibly lead to defaulting on international loans.

The United States is known for their national credit and such a situation could tarnish its reputation. Since Secretary of Treasury Alexander Hamilton in the 1700’s, America has made it a priority to pay back loans, and defaulting is not what the United States wants to do.

The Sequester: Deadline: Approximately March 2 

As of Jan. 2 automatic spending cuts were supposed to be enacted under the infamous sequester. Congress postponed these spending cuts for two months and promised to cut $12 billion and raise $12 billion in revenue. However, the cuts and revenue will not be enough to avoid surpassing the debt ceiling which the United States is quickly approaching. Congress will have to decide if they will continue to raise taxes and cut programs or if they will raise the debt ceiling.

The Budget:  Deadline: Approximately March 27

Every year Congress is supposed to create a national budget that begins Oct. 1 and continues for 12 months. Unfortunately, due to disagreements between parties, Congress has yet to decide on a budget. Instead, they passed “continuing resolutions,” which put off the decision. These resolutions expire in late March, when Congress will be forced to decide on a budget or put it off again.

Increase in Payroll Taxes

All the fiscal cliff agreements have avoided and will continue to avoid the issue of payroll taxes. As of 2013, the cut on payroll taxes expired and taxes will increase for all employers, leading to less pay for employees. Obama promised taxes would not raise for middle class Americans and some say this is congruent with his promise, because technically income taxes are not raising. However, money will come out of workers’ paychecks to pay for the increase, therefore lowing income like increased income taxes would have done.