Has the United States federal government averted a fiscal cliff with Tuesday night’s deal or has it plunged Americans further off a deeper cliff and into an economic collapse?
For the time being, the U.S. government has averted the fiscal cliff of 2013. President Barack Obama and Congressional leaders reached an agreement to new legislation that will see much bigger tax payments by the wealthiest of Americans, while the vast majority will be completely unaffected by any tax increases.
Individuals earning more than $1 million will pay an additional $122,560 in federal taxes. Those making between $500,000 and $1 million will be taxed an extra $7,000. Less than one percent of the U.S. will see a hike in taxes. Most wage earners will notice a two percent increase in the payroll tax that will go towards Social Security.
Furthermore, the bill also extends long-term unemployment benefits for two million Americans that were scheduled to expire, while also avoiding a scheduled cut in pay for Medicare doctors.
Other provisions were agreed to in the budget deal:
- Many tax credits were kept in check for 25 million families and students, including Earned Income Tax Credit, Child Tax Credit and American Opportunity Tax Credit
- Extension of renewable energy incentives, R&E tax credit and other business incentives
- No cuts to the Obamacare or beneficiaries
- Extension of the farm bill through the end of the fiscal year
- Sequester will be replaced for two months in 2013
“At this make or break moment for the middle class, the President achieved a bipartisan solution that keeps income taxes low for the middle class and grows the economy,” the White House said in a ‘fact sheet’ statement Tuesday. “For the first time in 20 years, Congress will have acted on a bipartisan basis to vote for significant new revenue. This means millionaires and billionaires will pay their fair share to reduce the deficit through a combination of permanent tax rate increases and reduced tax benefits.”
The Congressional Budget Office (CBO) stated that the fiscal cliff agreement will see a projected total of $620 billion in increased revenue, while only $15 billion in spending will be cut. That’s a ratio of 41:1 – a lot higher than the 1:3 and 1:2 ratio of the presidencies of Ronald Reagan and George H.W. Bush.
The bill will now head to President Obama’s desk where he is expected to sign it.
Although the president has vowed to cut the budget deficit in half over the course of his term, a report by the CBO suggested that the deal reached between the Republican leadership and the White House will add more than $4 trillion to the deficits over the next 10 years. Throughout the next decade, Tuesday’s arrangement will see revenues reduced by $3.64 trillion and a jump in spending by $332 billion.
Republican Speaker of the House John Boehner has been harshly criticized over the deal, especially when it comes to the growing budget deficit and a lack of real spending cuts. Many conservatives in the public and private sector have said they are deeply disappointed by the final points.
“This is one of the lowest common denominator deals. I wish I had something nice to say, but not so much,” said Maya MacGuineas, a budget hawk who is also one of the leaders of ‘Fix the Debt’, in an interview with Reuters.
Jim Rogers, financial guru and founder of Rogers Holdings, told NDTV that the deal reached in Washington is rather meaningless because it won’t change anything in Congress, whether it’s the spending or the debt.
“The spending will continue to go up, the debt will continue to go up,” said Rogers.
Meanwhile, retiring Texas Republican Congressman Ron Paul, who did not take part in the final vote, told CNBC this week that the fighting between the GOP and the Democrats isn’t about tax increases or spending cuts, but rather about power.
“We have passed the point of no return where we can actually get our house back in order,” said the three-time presidential candidate. “They pretend they are fighting up there, but they really aren’t. They are arguing over power, spin, who looks good, who looks bad; all trying to preserve the system where they can spend what they want, take care of their friends and print money when they need it.”
After months of fiscal cliff rhetoric and debate, the U.S. now faces a debt limit crisis where the borrowing limit has already hit the ceiling. Although the Treasury Department has started to take action to find $200 billion in savings for a couple of weeks, the president has said that he will not be participating in negotiations to raise the debt ceiling, a measure that he opposed in the Senate.
“While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed,” President Obama told reporters late Tuesday evening.
The national debt now stands at $16.4 trillion and despite whatever deal that is met, the CBO projects the debt will soar to $20.3 trillion by the end of President Obama’s second term.