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Deal, or no deal? Answers on what may happen next with ‘fiscal cliff’
Boehner, Obama hustle out of town with their parties still worlds apart
Question of the Day
Taxes would jump $2,400 on average for families with incomes of $50,000 to $75,000, according to a study by the nonpartisan Tax Policy Center. Because consumers would have less in their paychecks to spend, businesses and jobs would suffer.
At the same time, Americans would feel cuts in government services, some federal workers would be furloughed or laid off, and companies would lose government business. The nation would lose up to 3.4 million jobs, the Congressional Budget Office predicts.
“The consequences of that would be felt by everybody,” Mr. Bernanke says.
Much of the disagreement surrounds the George W. Bush-era income tax cuts, and whether those rates should be allowed to rise for the nation’s wealthiest taxpayers. Both political parties say they want to protect the middle-class from tax increases.
Several tax breaks begun in 2009 to stimulate the economy by aiding low- and middle-income families are also set to expire Jan. 1. The alternative minimum tax would expand to catch 28 million more taxpayers, with an average increase of $3,700 a year. Taxes on investments would rise, too. More deaths would be covered by the federal estate tax, and the rate climbs from 35 percent to 55 percent. Some corporate tax breaks would end.
The temporary Social Security payroll tax cut also is due to expire. That tax break for most Americans seems likely to end even if a deal is reached, now that Mr. Obama has backed down from his call to prolong it as an economic stimulus.
If the nation goes over the fiscal cliff, budget cuts of 8 percent or 9 percent would hit most of the federal government, touching all sorts of things from agriculture to law enforcement and the military to weather forecasting. A few areas, including Social Security benefits, Veterans Affairs and some programs for the poor, are exempt.
Call the whole thing off?
In theory, Congress and Mr. Obama could just say no to the fiscal cliff by extending all the tax cuts and overturning the automatic spending reductions in current law. But Republicans and Democrats agree that it is time to take steps to put the nation on a path away from a future of crippling debt.
Indeed, the automatic spending cuts set for January were created in August 2011 as a last-ditch effort to force Congress to deal with the debt problem.
If Washington bypasses the fiscal cliff, the next crisis would be just around the corner, in late February or early March, when the government reaches the $16.4 trillion ceiling on the amount of money it can borrow.
Mr. Boehner says Republicans won’t go along with raising the limit on government borrowing unless the increase is matched by spending cuts to help attack the long-term debt problem. Failing to raise the debt ceiling could lead to a first-ever U.S. default that would roil the financial markets and shake worldwide confidence in the United States.
To avoid that scenario, Mr. Obama and Mr. Boehner are trying to wrap a debt limit agreement into the fiscal cliff negotiations.
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