Fiscal cliff

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READ: Doug Ashburn's commentary on the fiscal cliff: Geronimo! on (July 2012)

The "fiscal cliff" refers to a set of budgetary changes in the Unites States set to take place at the end of 2012. [1] The fiscal cliff consists of a set of tax increases and spending cuts set to take place simultaneously, just as the nation approaches the debt ceiling.[2]

Tax Increases[edit]

If no action is taken by the end of 2012, a package of tax cuts enacted in 2001 and 2003, which consist of payroll, capital gains and dividend tax cuts, are set to expire. Additionally, several provisions of the Affordable Care Act are set to begin, which will raise taxes on high income earners. Finally, several tax credits, such as a research and experimentation credit, will sunset in January 2013.

Spending Cuts[edit]

The Budget Control Act of 2011, enacted as part of the debt ceiling debate in 2011 and set to begin January 2 2013, consists of automatic spending cuts or "sequestration" of funds. Half of the scheduled annual cuts ($109 billion/year from 2013-2021) will come directly from the national defense budget, half from non-defense. However, some 70 percent of mandatory spending will be exempt. [3]

Additionally, an extension of federal unemployment benefits will expire December 31, 2012, as will the Medicare "Doc Fix," which will result in a decrease of nearly 30 percent in the amount Medicare reimburses doctors.

Debt Ceiling[edit]

The U.S. Treasury estimates that the country will reach its debt ceiling, currently $16.394 trillion, in early 2013. The last debt ceiling debate, in the summer of 2011, resulted in a political standoff that rattled financial markets.


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