Photo: Flickr/KP Tripathi

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?

Comments (32)

Janice - January 2, 2013

I believe that the way Congress dramatically waited to solve the “fiscal cliff” crisis to the very last minute was more about the theatrics and not about doing their jobs responsibly. I think it is a disgrace when you think about all the “perks” they receive in their jobs and a real letdown to the American citizens. I even heard they’re going to vote themselves another raise soon and I’d like to know ….WHY? I don’t think they should be allowed to vote themselves a raise. Most Americans think our representatives are doing a horrible job representing WE THE PEOPLE and I believe enough is enough. THEY are all drunk with power and think they can put the citizens of this country through anything and we have to take it or accept all their immature antics. I, for one, am SICK of it all. I would like to recommend that the American citizens be in charge of when and if these representatives deserve a raise. When they don’t do their job effectively they should not be given a raise. They HOLD TO MUCH POWER over the people. This is not the way our forefathers wanted this nation governed. Everything has been twisted around and now our fates our determined by their decisions, even their irrational decisions. Now, the Hurricane Sandy victims will have to suffer at more of their inability to act. Yet, they continue to spend and spend and throw money at more of their bad decisions, just to buy friends from other countries and put the American citizens last. Hope the citizens of this country star to realize that we are last on their priority list. I believe this “fiscal cliff” crisis will reveal much about why they waited just so they can point fingers away from themselves….THE BLAME GAME! This game is played, when you don’t have the real ability to lead.

Alan Kohl - January 3, 2013

The only good thing to come out of this tax bill is an end to the payroll tax holiday. The tax holiday should never have been implemented in the first place because 1.) Americans were accustomed to the tax, and 2,) Reducing deposits to Social Security only deepened that abyss.

What does Heritage think can actually be done to rein in federal government spending? How can the president become a believer that his spending policies will ruin the country for decades to come?

Constance Strait - January 3, 2013

Investigate the BIG BOYS, from Bilderburger…Buffett ! THEY run this damned country and until WE THE PEOPLE demand a STOP & true leadership from OUR ELECTED…WE are in deep %#*%

Marc Young - January 3, 2013

Why didn’t anyone challenge Section 801 of HR8 as amended by the Senate? By changing two words it seems to imply that the President now has the unilateral right to reduce the US nuclear arms without a certification “that” the Russians are compying with the arms control treaties.

Claude J. Cox - January 3, 2013

Why did this entire ‘discusion’ in Congress occur without the Republicans CLEARLY telling the Public about the many tax hikes that are in the proposed ‘compromise’ coming out of the Executive branch?
While the Progressive Left got most of what they want, the people got a mere delay in the damages that are coming. We need to Communicate our side of the argument over and over and to be Heard. we are not being heard by the many Americans who are politically asleep.

Rita K Goodsell - January 3, 2013

People who do their homework the last minute do a rushed, lousy job; thus, the men of the final hour who wanted their names in history. They shouldn’t! Their game was lousy and they didn’t help the citizens of the U.S. very much. However, they made Obama the King of everything indecent!!!

Em - January 3, 2013

There is no longer an America. It is done. Thank you Republican Moderates. ALL in Congress can’t wait for the total fall of America. There is no fight in you you just lay down and let the liberals run over you.

Bobby - January 3, 2013

The real and most meaningful battle will arise when the next Debt Ceiling Increase Request from POTUS and the Secretary of Treasury present the request to the House of Representatives. The ratio of Spending Cuts Vs Tax Increases had better flip flop from what was agreed in this Fiscal Cliff negotiations. And can all participants agree that no pork be included in all bills from this point on. Pork should be presented in bill all by itself so it receives proper and timely scrutiny by the Public.

Mary Ann Bageac - January 3, 2013

It is not a wonder that what we are given at the ninth hour is an insult. However I would ask that the concept of moderation not be thrown out, that we get objective unvarnished information ie the “payroll holiday tax ” being essentially a tax increase to all if a little disingenuous as this is necessary monies for social security and was only to be temporary, and that when our elected leaders so have the backbone to say no to ear marks and pork as in the Sandy Bill we not disparage them so quickly and completely. {And I live on the Jersey Shore} I think we need to focus on a real effort to put term limits into effect, maybe find a 3rd party/ independent moderate party to go up against the current power brokers, some way to return some power to the people of this country
I also believe that Heritage would do well to work with the republicans on MESSAGING. They really seem to have a serious problem in that area so that the democrats/liberals are able to paint them in an incredibly negative light. They need to make better use of Paul Ryan who seems to be able to handle that messaging.

Laura - January 3, 2013

When those who govern willingly compromise moral principles and common sense, they subject the governed to impending disaster, both physically and financially. How can these members of congress, the president, judges, administrators think they can run a country or any organization without sound fiscal policies (e.g. a budget that puts the security and protection of the country as top priority, not spending us into deficit, ) Are they so devoid of common sense that they think they can defy the laws of finance? I think they have fooled themselves and all of us. They have become slaves to their own moral depravity and lust for power. How many of them can really relate to us middle-classers? They live too rich on the taxpayer dime. None of them will ever be subject to an Obamacare IPAB decision. They line their pockets with bennies from lobbyists and insider deals. And then they feel they are qualified to make decisions that affect the “regular ” people. I’ve never been so demoralized over the results of an election than in 2012, worse than in 2008 when I foolishly assumed that Obama and the Democrats would be voted out handily after 1 term for the disaster they have created. We’ve allowed our children, our neighbors, our students, our colleagues to become stupified, wrapped up in reality TV, while our government lies to our face. People cannot recognize media bias if it smacked them in the eyeballs. Obama etal can tell the non-discerning anything they want via CNN, ABC, NBC, CBS, NYTimes, etc and the majority of people believe it without asking questions. Where are the principled among those who govern who will stand up for the common man? We are in trouble. God help us all.

Entrepreneur - January 3, 2013

As the new year dawned, the House, Senate, and president all collaborated to enact the largest tax increase in human history — under the cover of night on the first day of the year, on the 100-year anniversary of the income tax. They did it in the name of saving us from some mythical beast called the “fiscal cliff.” It’s going to take an extra $20-40 or more out of your paycheck per week. If your son or daughter or a thief did that without your permission, you would be mighty upset. But this is what our elected leaders are doing to us, and we have no choice about it. Can you say Tyranny?

The tax increase is sneaky in other ways. It occurred in an area of federal finance that had not even been part of the debate, an area of taxation that many people don’t even believe constitutes taxation: the PAYROLL TAX. The 2% add-on that everyone will pay hammers the middle class in a way that all politicians, left and right, have SWORN they would NEVER do.

But they did it anyway. From an economic point of view, it is the STUPIDEST policy one could impose, given the fragile state of things.

Why would they do this? Because you have money and they want it. Their greedy priorities are far more important than your need to save, dine out, go on vacation, enjoy life and pursue happiness.

The frenzied deal to avoid the “fiscal cliff” — a PHONY, D.C.-generated CRISIS designed to frighten and intimidate the public. Incredible. All that talk about taxing the rich only, about broadening the base, etc., is BULL and this is what it comes down to: a massive fleecing of the entire workforce, combined with no spending cuts AT ALL. And to top it all off: The bill is called the “American Taxpayer Relief Act of 2012.” You cannot make this stuff up.

Andy - January 3, 2013

This agreement is a disaster. Hopefully this kills the Republican Party and a new, strong Conservative Party can rise from the ashes.

Nan - January 3, 2013

This is another 4 years of a tax and spend administration. The House has brought forward bill after bill to demonstrate fiscal responsibility, two of the most notable being the Paul Ryan plan and the Simpson/Bowles plan, but the president and the Senate have refused to bring fiscal responsibility to the table. We are close to the tipping point of real, serious trouble, namely the fourth turning.

Gerry Eberwein - January 3, 2013

1: The $1000 increase is about $20 per week and it is the elimination of the so-called temporary (for decades) tax break on the contributions of workers to social security. A factor contributing to the declines in solvency of that fund. [Note; I said A factor and not THE only factor.]
2; The number I heard numerous references to the threshold for tax increases was set at $400,000, not what was quoted in the premier article quoted in the posting above. If that’s what was used for the headline calculated increase then it doesn’t match the real outcome.

Jack Schutte - January 3, 2013

There were no real spending cuts in deal. The can was kicked down the road again. Republicans must demand substantive spending cuts in future budget deals.

loran carlson - January 3, 2013

I’m sorry to say that the citizens of this nation have become stagnant people. They no longer have the desire or the thirst to learn. They just don’t care to listen anymore. It is simply mind boggling that most of the people have no knowledge of who the VP Biden is, let alone any knowledge of our Constitution. Sad, very sad. But much worse, politicians attempting to destroy that very piece of paper.

Anna - January 3, 2013

Why is the media ignoring the fact that Obama lied? Didn’t he promise not to raise taxes on the middle class? And yet my HR department announced today that my social security tax (which I doubt I, as a 25 year old will ever see a cent of) went up by 2%. I make $35,000 a year and that’s a real punch in the gut. Of course I knew Obama would do this, but yet people have been stupid enough to vote for him twice.

Jim M - January 3, 2013

My take on the passage of the tax cuts is that Republicans are mistaken if they refer to this week’s tax legislation as a “defeat”. For years, Republicans were thwarted by the Democrats in their effort to make the Bush tax cuts permanent. Over much of the last decade, Democrats derided the Bush tax cuts as a “tax cut for the rich” and as “trickle-down” economics, which they improperly credited as a major cause of the recession. During all of Obama’s presidency, he emphasized his goal of raising taxes saying how it wasn’t fair that the “rich” got a disproportionate share of the Bush era tax cuts and later emphasizing those in the top 2% of incomes (above $200,000 single and $250,000 joint) in such remarks.

This weeks vote largely ratified Republicans long held positions. The Bush era tax cuts were made permanent for over 99% of Americans with an overwhelming bipartisan majority in both houses. Even Obama had to compromise by raising the level where tax increases would kick in from the $200,000 level to the $400,000 level ($450,000 joint), which essentially split the difference, buy cutting the number directly affected by the tax increase to the top 0.6% of the population vs. his long held position of including the top 2% in such increases. The same occurred with the estate tax by lowering the tax rate from 45% to 40%, which while up from the recent 35% also essentially split the difference between what Republicans wanted and what Democrats had said they wanted, but with a higher exemption than the $3.5 million espoused by the Democrats. (Had the law not passed, the estate tax was set to go to 55% on estates over $1 million.) This too, is now a permanent change allowing for essential estate tax planning with a long-term horizon and with the $5 million exemption essentially exempting 98% of all estates from tax. These changes are still indexed to inflation. Another benefit was a permanent lowering of the tax on dividends to 15% for all but those with incomes above the $400,000 ($450,000 joint) level where the rate rises to 20% —still well below the top marginal rate that was used historically before George W. In his remarks yesterday from the Senate floor, long time Democratic Senator Tom Harkin seemed to realize that the tax compromise went against the Democrats’ long held “religion” by essentially ratifying the derided Bush era tax dogma. He was one of the 8 senate votes against the compromise. (The big winner in this compromise appears to have been G.W. Bush. —CONGRATULATIONS, George!! —-and most of the American people.)

The top marginal rate is of great importance to our economy, and the increase in this rate was (and will be) a loss to everyone due to the number of growth oriented projects that will have to be canceled due to a lowered after tax cash-on-cash investment return. (e.g., Projects that were projected to have a 20% ROI and just met a “hurdle rate” requirement may now be canceled if the after tax return will now decrease to 15.4% due to the increase in marginal rates, —thus having a deleterious impact on employment). I think that nearly as important to our economy is the knowledge that the new higher rate is now considered a “permanent” rate change. (As permanent as anything in Washington can be —-excepting a new entitlement program.) This gives much greater visibility to business planners than another “kick the can down the road” approach of making the rate a “temporary rate” subject to review in another year or two. Thus, the higher rate may not have as great a negative impact as otherwise, given that at least it can now be plugged into calculations with some certainty for the future. (How many projects have been held up by businesses waiting for greater certainty in what will be coming with the settlement of the “Fiscal Cliff” talks?) Remember from WWII through 1982, the top marginal tax rates ranged from 70-90% —-albeit with so many loopholes very few ended up paying such high rates.

There are new health care taxes that will be going into effect as well this year, but these were “baked-in” with the results of the November elections and there is really nothing the Republicans could realistically do without the control of the Senate or the White House. They should not essentially “double count” this as part of their losses on this vote —-for those who tend to take the “glass half-empty” approach to all of this.

The reenstatement of the social security tax should not be viewed as a defeat. This tax had always been 6.2% for over two decades and is needed to fund a woefully underfunded Social Security system which has been running deficits since this temporary reprieve was put into place at Obama’s insistence in 2010. Longer term solutions are needed, but probably none will involve a lower tax without some kind of privatization. For many, the Social Security tax is the only Federal tax they may pay as exemptions, standard deductions and earned income tax credits can entirely offset the tax liabilities of some and permit many to not owe actual income taxesand get a refund to boot. (Remember the calls this election cycle for EVERYONE to at least pay some tax. This is it for now.)
I think we got much better results than I would have anticipated given that we only control the House and lost the November Presidential election and seats in both houses of Congress. Chin up!

Sharron - January 3, 2013

We have an administration and congress that hasn’t the courage to tell the mint to stop making one cent coins that cost more than two cents for every penny minted. They haven’t the guts to vote to get rid of Saturday mail delivery that would save billions of dollars. What makes any of us think they will do anything about the trillions in deficits? We are doomed!

George Sanford Jordan - January 3, 2013

Have the physician allowances under Medicare been ex-
tended under the Affordable Health Law? Are there any reduction in benefits to Medicare?

John Worden - January 3, 2013

Republicans are acting too much like trained pets to President Obama’s stand-up. President Obama, the half-truth President, needs to be challenged while noting that he is a President who needs to be listened to less while noting his actions more. We need Republican spokespersons who will not be nice and polite but, will be truthful and blunt. All we have to do is find them.

billy oehm - January 4, 2013

We are in big trouble, not to repeat has been stated over and over. Why can’t our side tell our story and get the point across. We need a leader to step up and dare the biased media to play the whole news briefing and say:
“Those of us that voted against this, did so because of the 10 to 1 spending increase in this bill.” Hammer home the spending increases. Why can’t our side tell our story? It’s time our side, take the gloves off. We are too polite.

Medora - January 4, 2013

I wish someone like Sean Hanity would keep saying “we don’t have an ecomomy problem we have a greedy political one.” We will fix this problem when we start focusing and speaking about what we want.

Robert Bruce - January 4, 2013

Heritage needs to be “honest” about the payroll tax holiday. It never should have happened, and it is good that it is over. This is the funding for social security, and while I don’t agree with the system, it is all there is and funding should be untouched in every respect, including Congress’ borrowing from it, and what we pay in to it. I have also seen no media report since its inception the fact that the “employer matching contribution” rate remained unchanged. So we employers have been working with two schedules. Thank goodness for Quickbooks payroll program.

John R - January 4, 2013

After reading the comments that are posted here I think my blood pressure has increased considerably. I agree with most everything written in these comments and yes we blame the politicians for our economic problems.
I beleive we as citizens of this nation deserve some of the blame as well. I could list the many ways our leaders in D.C. have deserted their constituents and chose to vote in favor of bills that benefit them politically rather than do what is good for our nation. But how often have we called or wrote letters to our legislators and let them know where we stand on different issues.
The concerns for our economic crisis are legitimate concerns but are they the number one priority. I think not. Since Roe v Wade over 50,000,000 million babies have been buthered in abortion mills nation wide. What are we doing to stop this horriffic destruction of lives. You say we can’t do anything to stop this because the Supreme Court ruling can’t be overturned. Baloney if Congess passed a life at conception bill that would put and end to abortion. Also ten states have passed bills allowing same sex marriage alarming yes. But according to polls taken nation wide the majority of the American people are opposed to same sex marriage. We claim to be a Christain nation but we are setting along the side lines and doing nothing and that includes a lot of our churches. When a nation ignores the Bible and the direction given us then it is possible that our God will ignore the needs of our nation as well. We as a nation have been richly blessed it is time we humble ourselves and return to the faith or our forefathers.

Connie - January 4, 2013

What amazes me is the term “tax” when referring to the FICA payment collected from all U.S. workers. The fact that it’s a premium on a retirement program seems to have been covered up years ago and is now called a payroll “tax”. The initial intent of the program as the workers’ money being held in a trust fund to be used when they reached retirement has been adroitly skewed to now be a “benefit” program, as if we and our employers haven’t paid for it over the years and that Social Security comes to the people out of the largess of the politicians. The Social Security fund has been screwed over so many times that it’s now going to be broke by 2020, or so it’s been said. As Alan Kohl said, the “tax” holiday should never have happened. It has only weakened the trust fund even further. Now with the healthcare law, the fund will be tapped even more to pay for some portions of that legislation abomination.

I find the actions of the politicians asounding.

William Neveling - January 4, 2013

Obama has no desire to decrease our deficit and control sepnding. His eventual goal will be to tax everyone. some way and some how in order to control our economy. When you control our economy you control its citizens. He lies and pretends to be concerned for the less fortunate and down-trodden. But his policies will only create more poverty and missery. Since when has the government ever run anything efficiently and without mass corruption being a major ingredient. Believe it or not, Obama dislikes America and is trying to destroy our beloved country. Remember, more goverment, less freedom.

Carole Wood - January 4, 2013

I am so frustrated w/our elected officials & their choices. Obama & his party reps seem to lie or twist everything they say & the gullible democrats believe them as though they were God, while the Republicans should be shouting to the rooftops what the truth is. Instead, they quietly let the Dems make fools of them. I believe our Congress & the President are the laughing stock of other governments & their people.
My hope is the House will toughen up, no matter what, during the next 4 years!

Paul Miller - January 4, 2013

Question — What specific income items are included in determining if a household reaches or exceeds the $450,000? Does income from TaxFree Munis enter the calculation?

Thomas Randall Sr - January 5, 2013

I think we have a congress that is more concerned with there own well being and not ours. To pass a Bill with out reading it shows they do not care whats in it. I am sure they watch there personal financial dealings very closely. Its quite obvious that they are not concerned wether we can pay our bills.

Dave Brosky - January 5, 2013

Unemployment benefits are extended as well I believe. This is a sensitive but necessary discussion topic. Jobs are available but they may not exactly fit many of the unemployed’s expectations and some (I believe many) prefer to continue taking until the benefits run out.

Bob A. - January 5, 2013

I think the fiasco we’ve been watching this last week was explained when one Washington reporter was asked on Fox News, “Have you found any grownups in the congress yet?” and he said, “not yet!”

Leave a Reply

Your email address will not be published. Required fields are marked *