Late Tuesday night, the House of Representatives approved the Senate’s last-minute fiscal cliff” deal that raises taxes on most American workers. Here are some answers to important questions you may have about what lawmakers actually agreed to.
What does it boil down to? The law includes $10 in tax increases for every $1 in spending cuts. Ultimately, this bill actually increases government spending by $330 billion.
Will normal Americans like me be affected? Yes. Heritage’s Amy Payne explains how:
In addition to tax increases on Americans making more than $250,000 a year, the bipartisan deal will actually raise taxes on the vast majority of American workers. How? The payroll tax “holiday” has ended. The Wall Street Journal calculates that the “typical U.S. family earning $50,000 a year” will lose “an annual income boost of $1,000.”
What does this mean for the economy? The bill raises tax rates on small businesses and investors, meaning fewer jobs and a weaker economy. Heritage Foundation tax expert Curtis Dubay explains:
It is the small businesses that employ the most workers who will pay the higher rates. These tax hikes on investment will further dampen investment and result in even less job creation. This is more bad news for the 12 million unemployed Americans.
Could this have been avoided? Lawmakers had known about the looming Taxmageddon tax hikes for two years, and Heritage spent most of 2012 raising the alarm. But lawmakers neglected to deal responsibly with the issue until yesterday–after the tax increases went into effect. And because Congress procrastinated, Payne notes, “the Senate voted without knowing the cost of the bill—the Congressional Budget Office had not even had time to go through it.”
Why is this fiscal agreement more important that other recent ones? Because it’s permanent. Every fiscal agreement reached by Congress since the 2001 Bush tax cuts has had an expiration date. This deal though cannot be altered unless Congress votes on it.
What’s next? President Obama has again delayed the inevitable fight over spending cuts. The deal postpones for two months the across-the-board budget cuts to defense known as sequestration. Until then, though, we can look forward to a new Congress, and what liberals like Nancy Pelosi have proclaimed this deal to be “a happy start to the new year.”
Tell us in the comments: Do you think this deal is a harbinger more fiscally responsibility in the year to come?