For most Americans, the “fiscal cliff” has until now been largely abstract – the usual Washington mud fight over cutting vs. taxing. But in three days, the conceptual becomes reality, and harshly so.
Turn your calendars to January 2013. Here’s what’s coming:
On Jan. 1, the country goes over the cliff – except it’s not so much a cliff as a tumble that gradually gains speed and misery. Right away, some consequences are clear: More than two million jobless Americans will immediately stop receiving unemployment checks as a federal extension of state unemployment benefits expires.
A 2 percent payroll tax cut also expires, which means that as Americans with jobs receive their first biweekly paychecks of the new year, those checks will be lighter by about $40 for someone earning $50,000. Because the Bush-era tax cuts also expire, those checks could be even thinner thanks to increased IRS withholding.
For Americans who can absorb the initial payroll tax hit, more pain awaits. About 28 million middle- and upper-income Americans would owe $92 billion of extra taxes on their income, thanks to a missing “patch” on the alternative minimum tax that Congress usually passes. That means come April 15, those taxpayers would owe an average of $3,200 extra to the IRS on their 2012 income.
Plus, significant “sequester” cuts arrive – about 9 percent out of defense and 8 percent out of government programs not including Medicare, Medicaid and Social Security. Those cuts would result in immediate spending and hiring freezes, with big jobs and benefit cuts down the road.
And that’s what experts can reasonably predict. What we don’t know is how dramatically the markets will react next month to Washington’s paralysis. We also don’t know how much Americans will tighten their grip on checkbooks, and whether that spending slowdown would shove the economy toward recession.
Of course, common sense tells us that Washington would never allow things to deteriorate so far, because public outrage and tanking markets would prompt an agreement sparing Americans from most of the hurt. But the prospect of such hurt should already have produced a deal by now. Instead, with three days before the calendar turns, House Republicans have stubbornly refused to consider a compromise Americans reelected their president to pursue – one that includes tax increases on affluent households with the promise of social spending cuts. Obama hasn’t specified what those cuts would be.
A reasonable alternative remains: Obama is proposing a measure that would let Bush tax cuts expire only for households making more than $250,000, extend unemployment benefits and suspend the sequester cuts. It’s not an ideal solution, but it offers critical cushion for taxpayers – and the economy as a whole – while nudging the bigger debt discussion to February or March, when Congress will be forced to confront the U.S. debt-ceiling limit.
Republicans seem to be pointing toward that fight, anyway, except they apparently don’t mind going over the cliff in the meantime. It’s a political calculation that they’ll have more leverage with the debt-ceiling looming, and with most Americans blaming them now for the stalemate, why not wait and see if the political landscape changes?
But the calculations Americans will make next week are far from political. Call it what you want – cliff or tumble or something else. It’s real. And it will hurt.
The Charlotte Observer welcomes your comments on news of the day. The more voices engaged in conversation, the better for us all, but do keep it civil. Please refrain from profanity, obscenity, spam, name-calling or attacking others for their views.
Have a news tip? You can send it to a local news editor; email email@example.com to send us your tip - or - consider joining the Public Insight Network and become a source for The Charlotte Observer.Read moreRead less