The Fiscal Cliff: What is it and why does it matter?

THE WHAT IS IT AND WHY DOES IT FISCAL MATTER? CLIFF AT THE END OF THE YEAR, LONG-STANDING TAX CUTS WILL EXPIRE AND INDISCRIMINATE, ACROSS-THE-BOARD SPENDING CUTS TO DEFENSE AND NON-DEFENSE PROGRAMS KICK IN. THE CONGRESSIONAL BUDGET OFFICE We must reduce our (CBO) SAYS GOING 'OVER THE CLIFF' WILL PROBABLY LEAD TO deficit - but not like this. another recession. What makes up the cliff? Total: $503 billion in 2013 Expiring Deep spending cuts [13%] tax cuts [87%] Expiring tax cuts Average tax increase for a typical middle class family of four: MIDDLE CLASS TAX CUTS + ALTERNATIVE MINIMUM TAX (AMT) PATCH $2,200 [49%] UPPER INCOME TAX CUTS [9%] $438 billion Ouch. PAYROLL TAX CUT AND UNEMPLOYMENT INSURANCE [25%] ROUTINELY EXTENDED TAX CUTS (USED MAINLY BY BUSINESSES) [17%] DEFENSE Deep spending cuts [37%] - $64 billion in cuts in 2013 -$54 billion of these cuts comprise what's known as the "sequester" – $64 billion indiscriminate, across-the-board cuts to defense and non-defense programs scheduled to begin on January 2nd Many entitlement programs exempt NON-DEFENSE [63%] Well? What's the hold up? A majority of Republicans have decided that if the wealthy don't get to keep all of their tax breaks, nobody does. They claim letting tax cuts expire for the highest earners will somehow hurt economic growth. Reality: CBO data show extending tax cuts for high-income earners has the lowest economic High income tax bang-for-the-buck of any other tax provision in the Fiscal Cliff. $0.10 cuts Middle/low $0.60 income tax cuts Payroll tax cut & unemployment $0.70 insurance $0.00 $0.25 $0.50 $0.75 Return on the dollar 1 Congressional Budget Office, "Economic Effects of Policies Contributing to Fiscal Tightening in 2013," October 1, 2012, http://www.cbo.gov/publication/43694 HOUSE BUDGET COMMITTEE DEMOCRATS @HOUSEBUDGETDEMS HTTP://DEMOCRATS.BUDGET. HOUSE.GOV 000bldlolblbin НВCD