The United States fiscal cliff refers to the effect of a series of recent laws which, if unchanged, will result in tax increases, spending cuts, and a corresponding reduction in the budget deficit beginning in 2013.[1] These laws include tax increases due to the expiration of the so-called Bush tax cuts and across-the-board spending cuts under the Budget Control Act of 2011.
The year-over-year changes for fiscal years 2012–2013 include a 19.63% increase in taxes and 0.25% reduction in spending.[2]
Some major domestic programs, like Social Security, federal pensions and veterans' benefits, are exempted from the spending cuts. Spending for federal agencies and cabinet departments, including defense, would be reduced through across-the-board cuts (referred to as budget sequestration).
The Congressional Budget Office reported an increased risk of recession during 2013 if the deficit is reduced suddenly, while indicating that lower deficits and debt over time improve long-term economic growth prospects. The deficit for 2013 is projected to be reduced by roughly half, with the cumulative deficit over the next ten years to be lowered by as much as $7.1 trillion or about 70%.
The following provisions of current law are most involved in the fiscal cliff:[10][11]
Expiration of the Obama tax cuts provided for in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010;
Across-the-board spending cuts ("sequestration") to most discretionary programs as directed by the Budget Control Act of 2011;
Reversion of the Alternative Minimum Tax thresholds to their 2000 tax year levels;
Expiration of measures delaying the Medicare Sustainable Growth Rate from going into effect (the "doc fix"), most recently extended by the Middle Class Tax Relief and Job Creation Act of 2012 (MCTRJCA);
Expiration of the 2% Social Security payroll tax cut, most recently extended by MCTRJCA;
Expiration of federal unemployment benefits, most recently extended by MCTRJCA and
New taxes imposed by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.
