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Fiscal Cliff Bill - What Does It All Mean?

Mortgage News > Fiscal Cliff Bill - What Does It All Mean?
Date: 01/07/2013    Fiscal Cliff Bill - What Does It All Mean?

The “Fiscal Cliff” has been at the top of the minds of many the last couple of weeks.  Did it raise or lower taxes? Will the nation’s deficit increase or decrease?  The answer to these questions depends on who is answering them.

In response to the agreement reached in regards to the “Fiscal Cliff” President Obama said the following, “the agreement reached this week will reduce the deficit even more by asking the wealthiest two percent of Americans to pay higher taxes for the first time in two decades”, as posted in a video on his campaign website Wednesday.  The President also said the fiscal cliff law “further reduces the deficit by $737 billion making it one of the largest deficit reduction bills passed by congress in over a decade” in his weekly radio address on Saturday.

The Congressional Budget Office, or CBO, estimates the fiscal cliff law will actually add nearly $4 trillion to the national debt over the next 10 years.

The Senate and the House voted to return tax rates to where they were in 2012, excluding the top one percent of earners who received a tax increase, after the Bush-era tax cuts expired on December 31. The pay roll tax cut was not extended, so workers will see an increase of roughly 2 percent in their payroll tax taken for Social Security.

With the timing of the vote on the fiscal crisis, theoretically there was a tax cut, however when the numbers are crunched and the logistics are worked out very few will actually pay less taxes in 2013 than in 2012.  And as for the deficit, President Obama’s claim of reducing it by $700+ billion is accurate when the new fiscal law is compared to tax policy in 2012.  And as for the CBO’s claim of the bill truly adding $4 trillion, that stems from comparing the new fiscal law to the policy that would have been in place had the government essentially gone over the fiscal cliff.