Us fiscal cliff what is

Either a new budget or another continuing resolution must occur before the end of March The sheer size of the fiscal cliff in scope, importance, and dollars signifies the uncertainty faced by American taxpayers. With so much of the tax and budget system on short-term lease, and with the proposed permanent fixes so widely varying, speedy economic growth becomes untenable.

While past practice suggests Washington will once again duct tape together another short-term extension and put off the hard choices, anything can happen. Entin, Extenders Bill H. The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work? We work hard to make our analysis as useful as possible.

Would you consider telling us more about how we can do better? November 13, TF Staff. Print this page Subscribe Support our work. Absent action prior to January 1, , many tax provisions would revert to pre law: The lowest income tax bracket of 10 percent would expire, reverting to 15 percent.

The top four income tax brackets would see rate increases. The 25 percent bracket would rise to 28 percent, the 28 percent bracket would rise to 31 percent, the 33 percent bracket would rise to 36 percent, and the top bracket would rise from 35 percent to Republicans generally advocate preventing increases in all these tax rates.

Democrats generally advocate preventing increases on the lower tax brackets but allowing the 35 percent bracket to increase to The tax on long-term capital gains would rise from a maximum of 15 percent to a maximum of 20 percent. Additionally, a 3.

The top capital gains tax rate would thus be The tax on qualified dividends would rise from 15 percent to ordinary wage tax rates.

The top dividend tax rate would thus be Personal exemption phaseouts PEP and itemized deduction disallowance Pease for certain high-income individuals would be restored, rescinding the value of some exemptions and deductions.

Source: Internal Revenue Service Despite this seeming rift, there is a large and growing body of research by economists that generally lean left-of-center pointing toward repeal of the estate tax. Figure 2. Increased Business Expensing A business may purchase a capital asset immediately but generally may not deduct the entire purchase from its taxes the first year. Additionally, those same high-income taxpayers with investment income must pay the 3. New excise tax on medical devices.

Producers of medical devices face a tax equivalent to 2. Increased threshold for deducting medical expenses. Presently, taxpayers who itemize deductions may deduct their medical expenses exceeding 7. Effective January 1, , that threshold rises to 10 percent. Reduced tax deductions for health insurance company payments to executives and directors. Continuing Resolution The U. Conclusion The sheer size of the fiscal cliff in scope, importance, and dollars signifies the uncertainty faced by American taxpayers.

Was this page helpful to you? Thank You! Let us know how we can better serve you! Give Us Feedback. Share Tweet Share Email. Congress has had difficulty authorizing funding for surface transportation projects on a long-term basis. In addition, the Highway Trust Fund HTF has faced shortages because revenues through the gasoline tax have not been sufficient. Sustainably financing infrastructure is critical.

Highway funding was renewed for five years in December, but the agreement will still leave a signifcant future shortfall in the HTF. The statutory debt ceiling constantly has to be raised because of rising debt.

Reforms to the debt limit should be considered that promote fiscal responsibility without generating much economic risk. The debt limit was suspended until by the Bipartisan Budget Act of These include individual and business tax breaks for research and experimentation, wind energy, state and local sales tax, and many others. Most are renewed regularly and can be reinstated retroactively through the end of This could have been an opportunity for comprehensive, pro-growth tax reform that simplifies the tax code, reduces tax rates and deficits, broadens the tax base, promotes growth, and makes thoughtful choices about how to address each tax extender.

Instead, lawmakers made a deal that expanded some and made a few permanent, while growing the debt considerably. Now you are probably aware that we don't have all of the revenue. Our revenue that we get through tax revenue and other things is somewhat less. So I'll draw that right over here. I'll do it in this green color. So this is how much revenue was brought in. So let me write this down.

Now let's think about how much might get spent under the different scenarios. So first I'll lay out a rough approximation of Obama's budget proposal for So Obama in So let's see this. And the next few videos, we could talk about the pros and cons, the arguments for and against something like that.

So relative to the 3. That gets us to 3. If my best estimate of what the Republicans in Congress would want. So let's write. Let's say, a Republicans in is that they would actually ideally want spending cuts from these levels.

So let's draw that out. They might even want more than that, but let's just go with that for now. That's about that right over there. Let me make clear. Now in the fiscal cliff scenario, the spending will be similar to the Republican ideal right over here.

So let me write this over here. Fiscal cliff. We are also spending. So let's draw that. So at least on the expenditure side. And these are all very rough. I'm sure the Republicans who would agree and disagree with this. But I'm trying to get my best sense of kind of an aggregate view on things. So the fiscal cliff. Now let's go to the revenue side of things.

In all of these scenarios for , and just to be clear, the fiscal cliff that's also for And all of these scenarios, we get the same revenue that we got in As the economy grows, and even if your tax rates are held completely constant, you're going to get more revenue for the federal government. So let me just shade all of these in really fast. So shade that one in. Shade that one in. And then, shade that one in. Now, as you've probably heard on the news, Obama would like to extend the Bush tax cuts for the middle class.

But he would like to not extend the Bush tax cuts on the rich. And he would like to actually include a few other tax increases, also on the wealthy.