Changes

The "'''Fiscal cliff'''" is the combination of United States financial policy changes that were scheduled to take effect at the start of 2013.  The [[Congressional Budget Office]] has predicted that if those policies are allowed to take effect, they will place the United States economy into a [[recession]].<ref name="nytrecession">{{cite news |title=Recession Possible if Impasse Persists, Budget Office Says |last=Calmes |first=Jackie |url=https://www.nytimes.com/2012/05/23/business/congressional-budget-office-warns-of-a-fiscal-cliff.html?_r=1&src=recg |date=May 22, 2012  |newspaper=The New York Times  |accessdate=October 19, 2012}}</ref>  On February 29, 2012, [[Ben Bernanke]] coined the term "fiscal cliff" in his testimony before the House Financial Services Committee.<ref name="Reuters-Bernanke-1202">{{cite web |title=Highlights: Bernanke's Q&A testimony to House panel |author=Washington newsroom |url=https://www.reuters.com/article/2012/02/29/us-usa-fed-bernanke-idUSTRE81S1DO20120229 |date=February 29, 2012 |publisher=Reuters |accessdate=October 19, 2012 }}</ref><ref name="CNBC120621">{{cite web|url=http://finance.yahoo.com/news/fiscal-cliff-may-europe-look-154128079.html |title= 'Fiscal Cliff' May Make Europe Look Like a Dip |first=Jeff |last=Cox | work=CNBC  |date=June 21, 2012 |publisher=Yahoo! Finance}}</ref>

The "'''Fiscal cliff'''" is the combination of United States financial policy changes that were scheduled to take effect at the start of 2013.  The [[Congressional Budget Office]] predicted that if those policies are allowed to take effect, they would place the United States economy into a [[recession]].<ref name="nytrecession">{{cite news |title=Recession Possible if Impasse Persists, Budget Office Says |last=Calmes |first=Jackie |url=https://www.nytimes.com/2012/05/23/business/congressional-budget-office-warns-of-a-fiscal-cliff.html?_r=1&src=recg |date=May 22, 2012  |newspaper=The New York Times  |accessdate=October 19, 2012}}</ref>  On February 29, 2012, [[Ben Bernanke]] coined the term "fiscal cliff" in his testimony before the House Financial Services Committee.<ref name="Reuters-Bernanke-1202">{{cite web |title=Highlights: Bernanke's Q&A testimony to House panel |author=Washington newsroom |url=https://www.reuters.com/article/2012/02/29/us-usa-fed-bernanke-idUSTRE81S1DO20120229 |date=February 29, 2012 |publisher=Reuters |accessdate=October 19, 2012 }}</ref><ref name="CNBC120621">{{cite web|url=http://finance.yahoo.com/news/fiscal-cliff-may-europe-look-154128079.html |title= 'Fiscal Cliff' May Make Europe Look Like a Dip |first=Jeff |last=Cox | work=CNBC  |date=June 21, 2012 |publisher=Yahoo! Finance}}</ref>

The policy elements of the fiscal cliff include:  

The policy elements of the fiscal cliff include:  

==Background==

==Background==

The creation of the fiscal cliff was an unintended combination of events.  The "cliff" refers to the large number of policies with economic impacts that are set to expire on December 31, 2012.  Although such policies issues are usually addressed in advance of the expiration date, politicians fear angering taxpayers by voting on these items before the November 2012 general election.  So, any action on the fiscal cliff issues will occur during the [[lame duck]] session between the November 6, 2012 election and the end of the year.  The action may be a permanent set of changes or a short-term extension of the 2012 policies into 2013 to avoid or smooth-out the "cliff."

The creation of the fiscal cliff was an unintended combination of events.  The "cliff" refers to the large number of policies with economic impacts that are set to expire on December 31, 2012.  Although such policies issues are usually addressed in advance of the expiration date, politicians feared angering taxpayers by voting on these items before the November 2012 general election.  So, any action on the fiscal cliff issues would occur during the [[lame duck]] session between the November 6, 2012 election and the end of the year.  The action could have beeb a permanent set of changes or a short-term extension of the 2012 policies into 2013 to avoid or smooth-out the "cliff."

The tax cut legislation enacted in 2002 and 2003 was subject to "pay as you go" Congressional rules that required the cuts to be scored by the Congressional Budget Office over a ten-year period.  As a result, the legislation provided for only temporary tax cuts that were scheduled to expire at the end of 2010.  In a budget compromise, the Republican members of the House of Representatives and President Obama agreed to extend the cuts until the end of 2012 in exchange for extending unemployment insurance benefits.

The tax cut legislation enacted in 2002 and 2003 was subject to "pay as you go" Congressional rules that required the cuts to be scored by the Congressional Budget Office over a ten-year period.  As a result, the legislation provided for only temporary tax cuts that were scheduled to expire at the end of 2010.  In a budget compromise, the Republican members of the House of Representatives and President Obama agreed to extend the cuts until the end of 2012 in exchange for extending unemployment insurance benefits.

During the summer of 2011, House Republicans refused to increase the ceiling on the total federal borrowing authority.  Although Congress had passed [[appropriation]]s on the assumption that additional money would be borrowed to meet deficit spending levels, without a higher ceiling, the U.S. Treasury could not borrow the money to pay what the federal government owed to vendors, suppliers, employees or beneficiaries.  The United States would default on its debts and be forced to shut down.  A compromised (called the [[Budget Control Act of 2011]])  was reached that raised the debt ceiling in exchange for the creation of a "Supercommittee" that would find spending cuts to take effect in 2013, with other spending cuts going into effect immediately.  If the Supercommittee could not reach an agreement or if Congress rejected their recommendations, then automatic across-the-board cuts to both defense and domestic spending would take place.  The law was drafted to make the automatic cuts so undesirable that Congress would be forced to work out a deficit reduction agreement.  However, the Supercommittee failed to agree and both Republicans and Democrats decided in 2011 to leave the spending cut question for additional legislation in 2012.  If a new law was not passed before December 31, 2012, then automatic spending cuts under the existing law would apply to almost all federal programs in 2013.  

During the summer of 2011, House Republicans refused to increase the ceiling on the total federal borrowing authority.  Although Congress had passed [[appropriation]]s on the assumption that additional money would be borrowed to meet deficit spending levels, without a higher ceiling, the U.S. Treasury could not borrow the money to pay what the federal government owed to vendors, suppliers, employees or beneficiaries.  The United States would default on its debts and be forced to shut down.  A compromised (called the [[Budget Control Act of 2011]])  was reached that raised the debt ceiling in exchange for the creation of a "Supercommittee" that would find spending cuts to take effect in 2013, with other spending cuts going into effect immediately.  If the Supercommittee could not reach an agreement or if Congress rejected their recommendations, then automatic across-the-board cuts to both defense and domestic spending would take place.  The law was drafted to make the automatic cuts so undesirable that Congress would be forced to work out a deficit reduction agreement.  However, the Supercommittee failed to agree and both Republicans and Democrats decided in 2011 to leave the spending cut question for additional legislation in 2012.  If a new law was not passed before December 31, 2012, then automatic spending cuts under the existing law would apply to almost all federal programs in 2013. The automactic spending cuts are called "sequestration".

Although the 2011 agreement raised the federal borrowing ceiling, the federal debt has continued to grow and the new ceiling is expected to be reached in early 2013.

Although the 2011 agreement raised the federal borrowing ceiling, the federal debt has continued to grow and the new ceiling was expected to be reached in early 2013.

In 2009, Congress enacted a stimulus bill that included a Making Work Pay tax credit that expired at the end of 2010.  The 2010 budget agreement replaced that tax credit with a two-year  temporary 2% reduction in the Social Security payroll tax.  Instead of individual workers paying those taxes into the Social Security Trust Fund, Congress moved money from the general fund to replace those dollars.  This added about $1,000 per year to the average worker's paycheck.<ref name=aarp>{{cite news|title=AARP pushing for retirement of Social Security payroll tax cut|work=Washington Post|page=A17|date=October 19, 2012|first=Suzy|last=Khimm}}</ref>  Without further action, the Social Security deduction on paychecks increased from 4.2% to 6.2%.

In 2009, Congress enacted a stimulus bill that included a Making Work Pay tax credit that expired at the end of 2010.  The 2010 budget agreement replaced that tax credit with a two-year  temporary 2% reduction in the Social Security payroll tax.  Instead of individual workers paying those taxes into the Social Security Trust Fund, Congress moved money from the general fund to replace those dollars.  This added about $1,000 per year to the average worker's paycheck.<ref name=aarp>{{cite news|title=AARP pushing for retirement of Social Security payroll tax cut|work=Washington Post|page=A17|date=October 19, 2012|first=Suzy|last=Khimm}}</ref>  Without further action, the Social Security deduction on paychecks increased from 4.2% to 6.2%.

The [[AARP]] is opposing any further extension of the Social Security payroll tax rate reduction. AARP fears that if the Social Security Trust Fund comes from general funds, Congress will be more likely to want to cut future benefits.<ref name=aarp/>

The [[AARP]] is opposing any further extension of the Social Security payroll tax rate reduction. AARP fears that if the Social Security Trust Fund comes from general funds, Congress will be more likely to want to cut future benefits.<ref name=aarp/>

== Resolution==

== Resolution==

Although the basic elements of the 2013 federal spending levels, federal debt ceiling, and possible tax reform remain unaddressed, a new [[American Taxpayer Relief Act of 2012]] was passed by the Senate  89-8 and by the House 257-167 on January 1, 2013 with President Obama signing it on January 2, 2012. In brief, the law:

Although the basic elements of the 2013 federal spending levels, federal debt ceiling, and possible tax reform remain unaddressed, a new [[American Taxpayer Relief Act of 2012]] was passed by the Senate  89-8 and by the House 257-167 on January 1, 2013 with President Obama signing it on January 2, 2013. In brief, the law:

*delays sequestration by two months

*delays sequestration by two months

*adopts permanent reduction of income tax rates for 98% of taxpayers

*adopts permanent reduction of income tax rates for 98% of taxpayers