What is the fiscal cliff?

November 15th, 2012

Published on Global Research.ca, by Patrick Martin, Nov. 14, 2012.

The term “fiscal cliff,” first used by Federal Reserve Chairman Ben Bernanke last February, refers to the simultaneous expiration of tax cuts and imposition of spending cuts on January 1, 2013. The American media has seized on the term “fiscal cliff” and promoted it, in part, to suggest that measures which would otherwise be enormously popular—ending the Bush tax cuts for the wealthy or cutting military spending—are threatening, even dangerous. 

The main purpose of the media propaganda about the impending “cliff” is to create a sense of financial emergency and override popular opposition to measures the Obama administration and congressional Democrats and Republicans will put forward to avert it, including sweeping cuts in Medicare, Medicaid and Social Security.

This is bolstered by the reaction in the financial markets, where a sharp sell-off could well serve as a political club to ensure that the policies demanded by Wall Street are adopted in Washington … //

… Expiration of the Bush tax cuts—$202 billion:

  • The largest item is the expiration of the tax cuts first enacted under the Bush administration in 2001, originally to expire January 1, 2011. A deal between Obama and the congressional Republican leadership in December 2010 extended these tax cuts for two years, to January 1, 2013, as Obama capitulated to the refusal of the Republicans to accept any separation between the tax cuts for the wealthy and those for lower- and middle-income families. The deal also extended estate taxes at the low rate that prevailed in 2009.
  • The same issue is posed in the talks between the White House and Congress set to begin formally this Friday, with Obama again claiming to oppose any extension of the tax cuts for families making more than $250,000 a year or individuals making more than $200,000 a year. These upper-income tax cuts alone account for $52 billion of the total.
  • Drawing such an income line would require passage of legislation by both the Democratic-controlled Senate and the Republican-controlled House. If Congress deadlocks or Obama vetoes an extension, the tax cuts would expire for all income levels and the average working class family would see a significant reduction in take-home pay.

Across-the-board spending cuts—$128 billion: … //

… Expiration of payroll tax cut—$115 billion:

  • The payroll tax that underwrites Social Security and Medicare was temporarily cut from 6.2 percent to 3.1 percent in December 2010, and that cut was extended through the end of this year in February 2012. The expiration of this tax cut will be felt as a 3.1 percent reduction in income for low- and middle-income families, more than the typical pay increase. It will mean a significant drop in real income.

Expiration of extended unemployment benefits—$39 billion: … //

… Expansion of the Alternative Minimum Tax—$114 billion:

  • The AMT, first enacted in the 1960s as a measure against tax evasion by the super-rich, was never indexed for inflation, so tens of millions of upper-middle-income families could now come under its provisions. Congress has repeatedly adopted temporary “fixes” to delay imposition of the tax, most recently in December 2010, limited to taxes on 2011 income.
  • If another “fix” is not adopted, or the AMT is not fully indexed for inflation retroactively, the number of families required to pay the AMT will rise from four million to 30 million next year, sharply increasing the tax bills these families will pay for income earned in 2012.

Expiration of miscellaneous tax provisions—$120 billion: … //

… (full text).

Links:

Google News-results for fiscal cliff;

fiscal cliff on BBCnews, Nov. 15, 2012;

all 1710 news sources on Google, Nov. 15, 2012;

United States fiscal cliff on en.wikipedia
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