With lots of hand-wringing and many complaints, lawmakers in Washington, D.C., agreed Tuesday on a fiscal cliff deal. We’ll break down the continuing story by delving into three questions:
- What happened?
- What’s the impact?
- What comes next?
After negotiations between Republican House Speaker John Boehner and President Obama failed, the Senate eventually took up to the torch. The Senate agreed to GOP Minority Leader Mitch McConnell’s plan on New Year’s Eve, and the House agreed to the plan less than 24 hours later. Both Democrats and Republicans have gripes with the bill: Republicans wanted big spending cuts while Democrats wanted more wealthy Americans to face higher taxes.
What’s the impact?
- Workers will see less in their paychecks because of something that wasn’t in the deal. Lawmakers did not extend the payroll tax holiday, which temporarily cut the amount deducted from wages for Social Security from 6.2% to 4.2%. That deduction is now back at 6.2%, so someone earning $40,000 a year would earn $800 less in 2013. You can see exactly how much this would affect you by using this Wall Street Journal calculator.
- What was in the deal was that tax rates will go up on anyone making more than $400,000 and families making more than $450,000. Taxes will remain the same for everyone else, but remember that you will see less take-home pay due to the aforementioned payroll tax holiday ending.
- Also in the deal: Several tax breaks, including the popular Child Tax Credit, were extended for another five years.
- The Alternative Minimum Tax, which was originally created to make sure the very wealthy didn’t avoid paying taxes, will be patched to avoid raising taxes on the middle class.
- The sequester – that massive package of automatic cuts – will be delayed for two months, meaning we’ll be having this same fight all over again.
A more in-depth look at the impact can be found on the Washington Post’s website.
What comes next?
- First up will be something this deal didn’t address: the debt ceiling, which will need to again be raised. While Republicans are looking at that as another opportunity to cut spending in so-called entitlement programs, President Obama was talking tough:
“While I will negotiate over many things,” he said, “I will not have another debate with this Congress over whether or not they should pay the bills they’ve already racked up through the laws they have passed. Let me repeat: we can’t not pay bills that we’ve already incurred.”
- As mentioned above, lawmakers will also need to address the $1.2 trillion in cuts that are part of the sequester, because it’s only been postponed for two months.