You’ve probably heard of the “fiscal cliff” conundrum the U.S. government was facing at the very end of 2012. Republicans and Democrats were gridlocked for weeks leading up to the deal, with disagreements on both sides as to how to best tackle the issues at hand. Furthermore, Congress waited until the very last minute to pass a deal, nearly pushing the U.S. over the cliff and into economic turmoil.
If the U.S. had gone off the cliff, many predicted the progress we’ve made over the past few years would reverse, and more Americans would have found themselves without work. The deal that was passed offers little consolation when it comes to fixing America’s widening cracks in the social safety net. Here’s a bit more about the deal and what it means for Americans.
What was the deal?
Democrats were pushing for a tax increase on incomes above $250,000 annually. In the final deal, they compromised, snagging tax hikes only on income above $400,000 for individuals, $450,000 for couples. The Bush tax cuts, once temporary, were made permanent for income lower than those levels. The deal also means an increase in payroll tax by two percentage points (up to 6.2 percent) for income up to $113,700. Tax on investment income (capital gains) increased to 23.8 percent for top income bracket earners, plus a 3.8 percent surtax for those making more than $200,000 (and couples making more than $250,000).
What does it mean for Americans?
The new plan raises taxes on 77.1 percent of households, and is expected to increase the deficit by $3.9 trillion during the next 10 years. The average yearly tax increase for affected households is about $1,635. This could have serious implications for middle class families in a tight economy, but it could mean even grimmer things for America’s social safety net.
The fiscal cliff deal won’t provide enough revenue in the long term to support social programs like Medicare, Social Security, and Medicaid at their current levels. Is the welfare state doomed? New York Times op-ed columnist Ross Douthat seems to think so:
“[T]hese negotiations amounted to a test of liberalism’s ability to raise revenue, and it isn’t clear that this outcome constitutes a passing grade: If a newly re-elected Democratic president can’t muster the political will and capital required to do something as straightforward and relatively popular as raising taxes on the tiny fraction Americans making over $250,000 when those same taxes are scheduled to go up already, then how can Democrats ever expect to push taxes upward to levels that would make our existing public programs sustainable for the long run?”
What is the underlying message?
The fact is, the fiscal cliff conundrum goes deeper than taxes and finances. It illustrates our politicians stubbornness even about urgent issues. It shows claims of teamwork are ignored when we need them most. It paints the same bleak picture we’ve been seeing for years now: Our leaders are more committed to impractical philosophies than solving problems.