Peeking over the 'fiscal cliff': What's down there?
President Barack Obama and a divided Congress are trying to avert a series of end-of-the-year spending cuts and tax increases that's been dubbed the fiscal cliff. They still disagree on how to do that.
Failure would mean that $500 billion in tax increases take effect early next year, coupled with $109 billion in spending reductions, the first installment toward $1.2 trillion in cuts over two years. The nonpartisan Congressional Budget Office has said that might raise the unemployment rate to 9 percent or higher and push us back into a recession.
What is the fiscal cliff? How did we get to the edge? And what does it mean for Americans if the government goes over it?
Here are some answers:
The failure of Congress to reach a bipartisan deal last year to reduce projected budget deficits led to today's predicament.
Congress agreed that if a 12-member committee failed to reduce projected deficits by $1.2 trillion over the next decade, spending would be cut automatically. The committee did fail, and the first round of automatic reductions is set to start in January.
Federal Reserve Chairman Ben Bernanke coined the term "fiscal cliff" in February testimony to Congress, where he warned that under current law "there's going to be a massive fiscal cliff of large spending cuts and tax increases."
Absent a deal, the 2011 law will cut nearly 10 percent of the nation's defense and domestic spending. The cuts, known as sequestration, might lead to fewer FBI and Border Patrol agents, air traffic controllers and park rangers. Housing for low-income families would be cut, and medical research would suffer. New equipment and repairs for the military would be delayed.
The Indian Health Service faces a cut of $356 million, leading to less care for a Native American population that already has a life span that's five years shorter than any other racial group's in the United States.
The list goes on and on: The agricultural disaster-relief fund, which was in the news during the brutal summer drought, stands to lose $104 million in funding. The Centers for Disease Control and Prevention would be cut by $464 million; the National Institutes of Health, $2.5 billion; the Transportation Security Administration, $429 million for airport security measures. The fund that doles out money to the families of Sept. 11 victims would shrink by $24 million.
Judge Julia S. Gibbons, of the 6th U.S. Circuit Court of Appeals in Tennessee, told Congress that the courts would have to downsize, implement furloughs, delay civil trials and lay off court security officers to cope with the cuts.
Most defense programs would be cut by 9.4 percent, while domestic programs would see an 8.2 percent reduction. Administration officials couldn't say how many federal employees would lose their jobs, but they said the cuts would have a "significant impact on the federal workforce."
Medicare benefits wouldn't be touched. Nor would veterans' benefits and food stamps, under the law. Medicare providers would take a 2 percent hit.
If the temporary George W. Bush-era tax cuts are allowed to expire, the income tax code would revert to tax brackets from 2000.
The current top rate of 35 percent would rise to one of two rates, either 36 percent or 39.6 percent.
The 25 percent tax bracket would rise to 28 percent, while the 31 percent bracket would rise to 33 percent.
On the low end, the current bottom tax bracket of 10 percent would disappear, reverting to a 15 percent bracket.
A married couple without children who have taxable income of $57,462 would see their income taxes go up by $2,262, according to a tax calculator created by the Tax Policy Center, a nonpartisan research center.
A couple with $106,059 in taxable income would pay $4,218 more to Uncle Sam, and couples earning $415,687 would pay an extra $20,841.
High-income taxpayers would see their personal exemptions phased out, and their itemized deductions subjected to more limits.
For married couples filing jointly, the standard deduction on their 1040 tax forms would shrink in size relative to single filers.
Investors' dividends would be taxed at the rate of ordinary income taxes, instead of the current 15 percent.
Capital gains would increase from 15 percent to 20 percent.