Cliff Notes on the Over-Hyped "Fiscal Cliff" Crisis
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Next obstacle: health care. The Affordable Care Act -- Obamacare -- includes a handful of new taxes that will go live in 2013. These will affect high-income Americans and some of the medical industry, like medical-device manufacturers. These taxes will likely go into effect right on schedule, but they’re so small they’ll have next to no discernible impact on the economy. (The more controversial taxes and fees in Obamacare go into effect in 2014.)
Also in the queue is a massive pay cut for doctors who serve Medicare patients. That scheduled change is the result of legislation originally passed in 1997. It’s something that lawmakers have repeatedly managed to avoid, and it’s not a daring prediction that they’ll do so again.
And then there’s the twenty-first century obstacle of obstacles in American politics: the Bush-era tax cuts for the high-income set. President Obama has said he will veto any legislation that keeps them in place, while Republicans in Congress insist that extending them must be part of any deal to maintain low rates for everyone else.
Among all the spending and tax changes in the queue, and all the hype around the cliff, the great unknown is whether it’s finally farewell to the Bush tax cuts for the wealthy. And that’s no perilous cliff. Letting those high-end tax cuts expire would amount to a blink-and-you-miss-it 0.003% contraction in the U.S. economy, according to Moody’s, and it would raise tens of billions of dollars in desperately-needed tax revenue next year. That’s no small thing when you consider that federal revenue has fallen to its lowest point in more than half a century. Ending these tax cuts for the wealthy would bring in cash to reduce deficits or increase funding for cash-starved priorities like higher education.
It’s impossible to say how Congress will come down on this final issue, though we do know how lawmakers will arrive at their decision. At least Congress is consistent. On this, as on all other matters in the fiscal obstacle course, it’s not the economy.
It’s the politics, stupid.