There’s some $400 billion in higher taxes, including the expiration of the Bush tax rates (extended by Obama in 2010), a temporary reduction in the Social Security payroll tax (passed in the lame duck session of Congress in 2011), and a host of other measures requiring annual congressional action, such as the need to patch the Alternative Minimum Tax (which saves middle-class taxpayers from a stinging tax increase) and to implement the “doc fix,” which prevents doctors from seeing their Medicare reimbursement rates slashed.
There’s $26 billion in expiring emergency unemployment benefits (extended several times since 2009). Finally, there’s $76 billion in cuts from the Budget Control Act, a deficit-capping deal struck in the heat of last summer’s negotiations to raise the national debt ceiling. Those cuts are coming into effect because Congress, recognizing its zombie problem, put automatic cuts into law in case Congress couldn’t determine an alternative path to reducing the deficit.
Congress couldn’t figure it out, so here come the cuts.
Without a solution to a swarm of problems Washington has dealt with on a temporary basis for the last two years, America risks a further downgrade of its credit rating (by postponing any budget-balancing measures) or toppling back into a recession (by allowing all of the spending cuts and tax increases that would hit Jan. 1 to take effect.)
"We can't keep kicking the can down the road," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, in a statement after Obama’s speech Monday. "No question, the fiscal cliff is bad economic policy and going over it will put us back into recession. But enlarging the mountain of debt we face would be disastrous as well – we have to rely on a more responsible approach. These problems only get harder to solve the longer we delay."