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发帖数: 29846 | 1 How did the U.S. reach a 'fiscal cliff' and what does it mean? Here are the
facts.
Posted on November 30, 2012
Summary
The U.S. faces the possibility of another recession — the third in 11 years
— if President Obama and Congress cannot find a way to avoid the so-called
fiscal cliff. The one-two combination of massive tax increases and spending
cuts scheduled to take effect, beginning Jan. 1, would push the
unemployment rate back above 9 percent, according to the Congressional
Budget Office.
There’s a growing consensus in Washington that some combination of spending
cuts and increased revenues is needed to reduce annual deficits and slow
the federal debt — without going over the fiscal cliff. The disagreement is
over the details, particularly over how and how much to increase tax
revenues and where to cut spending.
Some Republicans, including House Speaker John Boehner, say the president’s
tax proposals would “destroy nearly 700,000 jobs,” which is an
exaggeration. Many Democrats would prefer not to cut entitlement programs as
part of the negotiations, even though the three largest entitlement
programs — Medicare, Medicaid and Social Security — would consume 55
percent of all federal spending by 2022, compared with 43 percent in 2011,
according to the CBO.
We take no position on what Congress should do. But we can offer some
factual context to help understand the scope of what the CBO calls the
nation’s “fundamental budgetary challenges.”
Some facts to consider:
The scheduled tax increases, if allowed to take effect, would net an
additional $536 billion in fiscal year 2013, according to the nonpartisan
Tax Policy Center, raising more than $5 trillion in 10 years. Nearly 90
percent of Americans would pay more in taxes, TPC says, with the average
increase being nearly $3,500.
The automatic spending cuts scheduled to take effect would cut $1.2
trillion over 10 years, split roughly in half between domestic and military
spending.
Obama’s plan calls for increasing revenue by $1.6 trillion over 10
years. Republican congressional leaders have not proposed a counter offer
for revenues, but during the so-called “grand bargain” negotiations in the
summer of 2011, Boehner reportedly had agreed to $800 billion worth of
increased revenue.
As a percentage of the nation’s economy, the federal government now
spends 22.7 percent and collects in revenue 15.7 percent — a large gap that
has persisted for years and has contributed to four straight years of $1
trillion deficits.
A bipartisan fiscal commission created by Obama has proposed capping
revenues at 21 percent by the year 2022, and getting spending below 22
percent.
The Analysis below provides details on these and other facts.
Analysis
The fiscal cliff was created by a series of actions by Congress, beginning
with the approval of the Bush-era tax cuts in 2001 and 2003.
The Bush tax cuts were extended by the Tax Relief Unemployment Insurance
Reauthorization and Job Creation Act of 2010. But the 2010 tax legislation
did more than that. It also extended some of the tax breaks in President
Obama’s 2009 stimulus bill and temporarily reduced the Social Security
payroll taxes.
A year later, Congress passed the Budget Control Act of 2011, which Obama
signed into law. That law imposed spending caps on discretionary spending
through 2021 that are supposed to save $917 billion over 10 years, according
to an August 2011 analysis by the nonpartisan Congressional Budget Office.
The law also created a special bipartisan congressional committee charged
with reducing the deficit by at least $1.5 trillion over 10 years. But the
so-called super committee failed to agree on a deficit-reduction plan and,
under the Budget Control Act, $1.2 trillion in automatic budget cuts over 10
years are now scheduled to take effect, beginning in January. At the same
time, the temporary tax cuts approved under both Bush and Obama are due to
expire.
Tax Increases Looming
In an Oct. 1 report on the fiscal cliff, the nonpartisan Tax Policy Center
estimates that the scheduled tax increases, if allowed to take effect, would
net an additional $536 billion in fiscal 2013. How significant is that?
Federal revenues were about $2.45 trillion in the fiscal year that ended
Sept. 30 — meaning the scheduled tax increases alone would raise revenues
by about 22 percent.
In its report, TPC lists six reasons why taxes are scheduled to increase by
so much:
The Bush-era tax cuts enacted in 2001 and 2003 and extended for two
years at the end of 2010 are set to expire. Cost: $254 billion.
Temporary tax breaks that were part of Obama’s stimulus law and
extended at the end of 2010 will expire. Cost: $27 billion.
Congress has yet to act on short-term tax breaks, mostly for businesses,
that are routinely extended but have yet to be approved. Cost: $75 billion.
A temporary payroll tax cut enacted for 2011 was extended through 2012,
but is now set to expire at the end of this year. Cost: $115 billion.
Tax increases contained in the Affordable Care Act on upper-income
taxpayers will go into effect: a 3.8 percent tax on unearned income, 0.9
percent increase in Medicare payroll taxes and a higher income threshold for
deducting medical expenses. Cost: $24 billion.
The Alternative Minimum Tax, which was designed to make sure wealthy
Americans pay a minimum tax, was never indexed to inflation on a permanent
basis. As a result, Congress must fix this problem — as it has every year
since 2001 — or 28 million more taxpayers will pay higher taxes. Cost: $40
billion.
If all that happened, taxes would increase an average of $3,466 per
household, according to the TPC. Middle-income households — those earning
nearly $40,000 to about $64,500 a year — would see an average increase of $
1,984.
The chart below from the Tax Policy Center shows the impact on average tax
rates for taxpayers in different income groups (as defined in a footnote on
the last page of the report):
Congressional leaders say they are confident that they will negotiate a deal
that will avoid some if not most of these tax increases from taking effect.
What is likely to happen?
Congress is widely expected to “patch” the AMT. In its report on the
fiscal cliff, the TPC ranked the AMT tax the least likely to increase among
nine categories of pending tax increases. In urging Congress to pass an AMT
“patch,” the IRS said 28 million taxpayers, “many of them middle-class
families,” would pay more in taxes if Congress fails to act.
On the other hand, the tax increases contained in the Affordable Care Act
are expected to take effect next year now that Obama has won reelection.
Those taxes would fall most heavily on upper-income taxpayers. TPC says
taxpayers earning more than $108,266 would see an average increase of $1,141
a year.
There is less certainty about the other scheduled tax increases —
particularly the Bush-era tax cuts, which reduced tax liability on earned
income, capital gains and dividends, and the estate tax.
Under current law, the marginal individual income tax rates would all snap
back to pre-2001 levels. As the TPC explains, the 10 percent tax bracket
will disappear, making the lowest bracket 15 percent, and the “25 percent,
28 percent, 33 percent, and 35 percent rates will revert to 28 percent, 31
percent, 36 percent, and 39.6 percent respectively.”
Allowing the Bush-era tax cuts to expire for individuals earning less than $
200,000 and married couples earning less than $250,000 would cost those
taxpayers $171 billion, or nearly a third of the total $536 billion “cliff,
” according to the TPC.
If Congress does extend the Bush tax cuts for those taxpayers, as the
president has proposed, then the total average tax increase for middle-
income taxpayers would drop from $1,984 to $1,096, according to the Tax
Policy Center. The AMT “patch” would reduce the potential tax hike for
those same taxpayers another $104 a year on average — dropping the average
tax increase for middle-income taxpayers to less than $1,000 by virtue of
those two actions.
The Bush-era tax cuts for the upper-income taxpayers appear to be at a
greater risk of expiring — unless the parties can negotiate an agreement to
raise revenue elsewhere to keep the lower tax rates in place. TPC estimates
that the income tax changes would raise $44 billion from individual
taxpayers who earn $200,000 and couples earning $250,000.
In addition to the individual income tax changes, other major changes slated
to take place that will affect the wealthy include these:
The estate tax: The current $5.1 million per-person exclusion from the
federal estate tax is scheduled to fall to $1 million, and the top tax rate
is scheduled to rise to 55 percent in 2013. That would raise an estimated $
31 billion in 2013.
Capital gains and dividends: The tax rate is 15 percent on long-term
capital gains (assets held at least one year) and qualified dividends for
taxpayers in the top four tax brackets (currently ranging from 25 percent to
35 percent). The capital gains rate is scheduled to increase to 20 percent
for those taxpayers, while dividends would return to being taxed at regular
income tax rates. Estimated impact: $8 billion.
There’s uncertainty for low- and middle-income taxpayers, too.
As we mentioned earlier, the 2010 tax legislation cut the employee portion
of the Social Security payroll tax. The rate fell from 6.2 percent to 4.2
percent in 2011 and 2012.
Treasury Secretary Timothy Geithner testified before the election that he
did not support extending the payroll tax cut again. The New York Times
quoted him as saying: “This has to be a temporary tax cut. I don’t see any
reason to consider supporting its extension.” Now, however, the
administration is negotiating to “include an extension of the payroll tax
cut or an equivalent policy aimed at working-class families,” the Times
reported on Nov. 29.
The expiration of the payroll tax cut would mean that middle-income
taxpayers would see an average tax increase of $672 per year, according to
the TPC.
In addition to the expiration of the payroll tax cut, there were a host of
tax credits in the president’s 2009 stimulus legislation that were extended
in 2010 and are now due to expire. Obama expanded the earned income tax
credit, increased the value of the child tax credit for low-income families,
and expanded and increased the college tuition credit.
The Tax Policy Center says the credits benefit about 152 million taxpayers,
and more than half of them earn less than $50,000 a year. For example, a
taxpayer earning $20,113 or less would pay an average of $209 more in taxes
if the credits expire, the TPC analysis shows (Table 6). That’s about half
of what that taxpayer’s total increased tax liability would be — $412 —
if all of the fiscal cliff tax changes went into effect as scheduled.
Closing the Gap
There is a growing consensus in Washington that there needs to be a
combination of increased revenues and spending cuts to close the big gap
that has developed in recent years between revenues and outlays.
As a percentage of the nation’s economy, the gap between what Washington
spends (22.7 percent) and collects in revenues (15.7 percent) narrowed
slightly in the last fiscal year. But the federal government is still a long
way from the times when revenues more closely matched spending — as you
can see from the chart below. We created the chart using historical budget
data from the federal Office of Management and Budget, updated with Treasury
Department figures for the fiscal year ending Sept. 30, 2012.
Since fiscal year 1946, a post-World War II federal government has run
surpluses in 12 of 68 years — most recently for a period of four straight
years, beginning in 1998 under President Bill Clinton.
The government’s checkbook benefited in the Clinton years from the effects
of a large tax increase pushed by the Democratic president in 1993, his
first year in office. That tax increase fell most heavily on those making
more than $200,000 — which is why the tax rates under Clinton are cited
frequently (but not entirely accurately) by Obama in his push to allow the
marginal individual tax rates to rise in the top two brackets. (We’ll get
to Obama’s plan later.)
Clinton’s fiscal 1994 budget also contained limits on spending,
particularly in the military following the collapse of the Soviet Union at
the end of 1991. When the House passed that budget, the New York Times
reported that there was roughly a 1-for-1 ratio between spending reductions
and tax increases over a five-year period.
The surpluses evaporated as the nation went through two wars and two
recessions — the first triggered by the dot-com bust, which began in mid-
2000. Deficit spending returned in fiscal 2002 and worsened after the second
recession. The federal government has now posted four straight years of $1
trillion deficits.
In March, the Congressional Budget Office projected that under the president
’s proposed budget for 2013, spending would equal 23.4 percent of GDP while
revenues would be 17.2 percent. The deficit, CBO said, would equal 6.1
percent of the economy that year and average 3.2 percent over the 10-year
period ending in 2022. But the CBO currently projects that a continuation of
current policies — including the Bush-era tax cuts and an AMT “patch” —
would push the deficit to 6.5 percent of GDP in 2013, with spending and
revenues equal to 22.8 percent and 16.3 percent, respectively.
In an op-ed piece, Warren Buffett, the chairman and chief executive of
Berkshire Hathaway, wrote that the government should aim to raise revenues
to 18.5 percent of GDP while keeping spending to around 21 percent.
Acknowledging that this wouldn’t eliminate deficits, he wrote that “this
ratio of revenue to spending will keep America’s debt stable in relation to
the country’s economic output.”
The president’s bipartisan fiscal commission, on the other hand, called for
more revenues in a report issued back in December 2010. As part of its “
six-part plan to put our nation back on a path to fiscal health, promote
economic growth, and protect the most vulnerable among us,” the commission
proposed capping revenues at 21 percent by the year 2022, and getting
spending below 22 percent and eventually to 21 percent by 2035.
And the CBO issued a report in November saying that there are many options
for reducing our deficits. But continuing on the current path, CBO said, was
not one of them.
The Opening Proposals
Both Democrats and Republicans have been talking about the need to
compromise on the fiscal cliff. But what is their starting position in these
negotiations?
Obama laid out his vision in his 2013 budget proposal. Overall, his plan
calls for increasing revenues by $1.6 trillion over 10 years. (During the “
grand bargain” negotiations between Obama and House Speaker Boehner in the
summer of 2011, Boehner had agreed to $800 billion worth of increased
revenue.)
There are a number of corporate tax implications in Obama’s plan, but here
are the major parts affecting individual taxpayers:
Allow the Bush tax cuts to expire for couples making over $250,000.
Specifically, that would increase the top tax rate from 35 to 39.6 percent.
That’s expected to generate $442 billion over 10 years. (page 219)
Reduce the value of itemized deductions and other tax preferences to 28
percent for families with incomes over $250,000. That is expected to
generate $584 billion over 10 years. (page 220)
Increase capital gains tax rates from 15 percent to 20 percent, raising
$36 billion over 10 years.
Increase taxes on dividends from 15 percent to 39.6 percent. That’s
expected to raise $206 billion over 10 years.
That’s the meat of Obama’s plan, but as he said in a news conference on
Nov. 9, “I’m not wedded to every detail of my plan. I’m open to
compromise. I’m open to new ideas.”
There has been no consensus plan yet proffered by Republicans, though last
year the House passed a bill to extend the Bush tax cuts for everyone for
another year.
More recently a number of Republican leaders have floated the idea of
capping itemized deductions as a way to raise revenue without raising tax
rates.
For example, on ABC’s “This Week” on Nov. 25, Sen. Lindsey Graham said:
Graham, Nov. 25: I’m willing to generate revenue. It’s fair to ask my
party to put revenue on the table. We’re below historic averages. I will
not raise tax rates to do it. I will cap deductions. If you cap deductions
around the $30,000, $40,000 range, you can raise $1 trillion in revenue, and
the people who lose their deductions are the upper-income Americans.
During the presidential campaign, GOP nominee Mitt Romney floated a proposal
during the second debate to cap itemized deductions at $25,000.
Romney, Oct. 16: And so in terms of bringing down deductions, one way of
doing that would be to say everybody gets — I’ll pick a number — $25,000
of deductions and credits. And you can decide which ones to use, your home
mortgage interest deduction, charity, child tax credit and so forth.
The Tax Foundation analyzed a $25,000 cap and concluded it would raise about
$1.3 trillion over 10 years.
So why do some Republicans prefer caps on itemized deductions to higher tax
rates? Mark Duggan, professor of business economics and public policy at the
Wharton School of Business at the University of Pennsylvania, said a higher
rate “hurts incentive to work.” Second, he said to us in an email, “when
you exclude some things from the tax base you introduce distortions. By
excluding health insurance, mortgage interest, etc. you subsidize certain
goods (health care and housing) but not others. Furthermore the subsidies
are bigger for those with high incomes where rates are highest.”
One option not being considered is doing nothing — thus allowing the
spending cuts and the tax increases to take effect. What’s the consequence
of that? CBO projects that the nation will most likely slide into a
recession and the unemployment rate, which was 7.9 percent in October, would
rise to 9.1 percent.
But short-term pain would be followed by long-term gain, the CBO says.
CBO, Nov. 8: CBO projects that the significant tax increases and
spending cuts that are due to occur in January will probably cause the
economy to fall back into a recession next year, but they will make the
economy stronger later in the decade and beyond. In contrast, continuing
current policies would lead to faster economic growth in the near term but a
weaker economy in later years.
On the spending side of the equation, Obama’s position has not budged much
from the position he outlined in September 2011 in his President’s Plan for
Economic Growth and Deficit Reduction.
The president’s plan boasts of $4 trillion in “savings” from spending
over 10 years. To get to that figure, the president included roughly $1
trillion in spending cuts that he had already signed into law in the Budget
Control Act; savings from drawing down the wars in Iraq and Afghanistan; and
$580 billion in “cuts and reforms” to an array of mandatory programs —
everything from agricultural subsidies to federal civilian worker retirement
plans. Also included in that figure is $248 billion in reduced spending on
Medicare and $73 billion on Medicaid.
The Spin
There are an awful lot of numbers and scenarios being thrown around by
politicians regarding the fiscal cliff. We find that some are false and
misleading, while others are accurate, but show an incomplete picture.
For example, Obama several times has stated that if the Bush tax cuts are
not extended for families making under $250,000, “A typical middle-class
family of four would see its taxes rise by $2,200.” The White House has
even launched a campaign asking Americans to, “Tell us what $2,000 means to
you and your family.” The White House is also encouraging people to “keep
the conversation going online” on Facebook and Twitter using the hashtag #
My2K.
The White House construction is accurate, but very specific. Note that in
the online appeal, Obama is pictured at a table with two parents and their
two children. According to a White House fact sheet, a married couple with
two children with income between about $50,000 and $85,000 would see a tax
increase of $1,000 because of a Child Tax Credit reduction; a tax increase
of $890 due to the merging of the 10 percent tax bracket into the 15 percent
tax bracket; and a tax increase of $310 because of the expiration of
marriage penalty relief that provides a larger standard deduction for
married couples. In total, that comes to $2,200.
As this breakdown makes clear, the biggest part of the tax increase comes
from the fact that they are married and have two kids. The tax impact is
much less for unmarried people without children, or even married people with
one or no children.
According to calculations by the Tax Policy Center, those in the middle-
income quintile, who earn roughly between $40,000 and $64,000 would see —
on average — a $961 tax increase next year if the Bush tax cuts are not
extended. (It comes to about $1,100 for those earning between $50,000 and $
75,000 — which is closer to Obama’s parameters.)
The Tax Policy Center has created a tax calculator with which taxpayers can
determine how much various fiscal cliff scenarios may affect them.
Other claims from politicians include:
Raising taxes on upper-income earners would “destroy nearly 700,000
jobs in our country.” We looked at this when Boehner said it recently. It’
s based on a report from the accounting firm Ernst & Young that assumed
revenue from the taxes would be used “to finance a higher level of
government spending,” even though Obama would use the added revenue to
reduce the deficit.
Among wealthy taxpayers who would be hit with an increase under Obama’s
proposal, Boehner said, “more than half of them are small-business owners.
” According to a 2011 report from the Treasury Department’s Office of Tax
Analysis, more than 90 percent of small-business owners wouldn’t be
affected by Obama’s proposal. But upper-income taxpayers do account for 57
percent of the income of small-business owners, which is what Boehner’s
spokesman says he meant to say.
“Social Security does not add one penny to our debt.” We fact-checked
that claim when Democratic Sen. Richard Durbin said it on ABC’s “This Week
” on Nov. 25. It’s false. The federal government for the first time in its
history had to borrow money in 2010 to cover Social Security benefits to
retired and disabled workers — a trend that worsened in 2011 and will not
change at any point in the future unless changes are made.
– by Eugene Kiely, Robert Farley and D’Angelo Gore
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