For more, see this story from NPR's Marilyn Geewax on how Congress might pass some stopgap measures to blunt the effect of the fiscal cliff.
A bunch of federal tax increases and spending cuts are scheduled to kick in around Jan. 1, 2013. This is what people are talking about when they talk about the "fiscal cliff."
If recent experience is any guide, things will probably start to get crazy as the deadline approaches, and Congress will move at the last minute to block some of the tax increases and spending cuts.
Before things get crazy, let's take a quick look at the numbers for fiscal year 2013.
Here's a breakdown of the tax increases.
The alternative minimum tax increase probably won't happen. It's this weird accounting thing that Congress needs to deal with year after year to prevent a tax increase, so they'll likely deal with it again this year.
The Bush tax cuts, which were renewed by President Obama in 2010, lowered marginal tax rates across the income spectrum. Obama has argued for extending the tax cuts for household income below $250,000, and letting taxes increase for income over that level. Congressional Republicans have argued for extending all of the cuts.
The payroll tax, which funds Social Security, is paid by all workers. The tax was temporarily cut by two percentage points this year in an effort to stimulate the economy. That cut expires at the end of this year. This recent Politico story suggests the cut is unlikely to be extended.
New health care taxes were created by the Affordable Care Act (aka Obamacare) to pay for expanding health insurance coverage. These will mainly affect households with income over $250,000 a year.
Here's a breakdown of the spending cuts.
Lower Medicare payments to doctors probably won't happen. It's like the alternative minimum tax increase — this weird accounting thing Congress needs to deal with year after year, in this case to prevent pay cuts to doctors. Congress almost always intervenes at the last minute to prevent the cuts.
Unemployment benefits were expanded during the recession and extended under a temporary measure that's set to expire on Jan. 2. The program has already begun to wind down.
Source: The Committee For A Responsible Federal Budget
The biggest chunk of spending cuts come from what wonks call the "sequester," and what everybody else calls "those random cuts that got scheduled when Congress voted at the last minute to raise the debt ceiling and set up a supercommittee to cut spending, but the supercommittee couldn't figure out how to cut spending, so now a bunch of automatic cuts are supposed to kick in." There's a good chance that Congress will intervene to block some or all of these cuts.
The numbers in this post come from a recent report by the Committee For A Responsible Federal Budget. Read it here.
Correction: A previous version of the graphic titled 'Sequester Breakdown' showed incorrect numbers.