There might be 2 ways to look at the fiscal cliff.
Specifically, we can focus on tax increases and spending cuts:
- Bush era tax cuts: expire
- 2010-2011 2% payroll tax cut: expire
- Affordable Care Act taxes: kick in
- Emergency unemployment benefits: expire
- Budget sequester (cuts) from Super Committee failure: kick in
- Previously legislated budget cuts: kick in
- Defense cuts from Iran/Afghanistan reductions: kick in
- Medicare payment rates for physicians: reduced
More broadly, we can take a step backward and look at the bigger problems that really have to be solved:
- 63% of the 2011 federal budget was on “autopilot.” Debating cuts, the Congress only looked at 37% of spending.
- 1 of 4 budget dollars is spent on healthcare. Looking back 50 years ago, less than 10% of all spending was healthcare, and looking forward, we are heading toward 33%.
- Slicing federal employees and agencies would save money but not nearly enough. Even if we fired the entire federal payroll, the deficit would dip by less than one third.
- Defense spending is massive. We spent 1 out of every 5 dollars on defense in 2011.
- We now borrow close to 36 cents for every dollar we spend. And yet still, the more affluent are paying a larger proportion in taxes and the middle of the middle class (as expressed in the video) is paying a lower proportion.
Where does this leave us? Defined as taxing, spending and borrowing, US fiscal policy is the real fiscal cliff.
Sources and Resources: The specifics of the fiscal cliff are from a past econlife post while the summary of the big issues is from the David Wessel/WSJ video that follows. For even more detail, this Tax Foundation description of the fiscal cliff is good.