The clock is winding down on the Jan. 1 deadline for the fiscal cliff crisis, and the Republican Party has punted.
House Speaker John Boehner, who introduced what he thought was a game-changing proposal he dubbed “Plan B,” didn’t even bother bringing the measure to a vote on the Thursday before Christmas.
The Boehner plan called for tax increases on only those making $1 million or more – about 400,000 families – but fellow Republicans rejected it. They told their leader they wouldn’t support tax hikes for any Americans, thus the bill was dead before it could be voted on. Boehner punted.
“It’s up to the president to work with Senator (Harry) Reid on legislation to avert the fiscal cliff,” Boehner said, after sending representatives home for the holidays.
The fallout from the embarrassing failure is hard to gauge, but Boehner made it clear at a press conference on Dec. 21 that he and the Republicans were out of ideas for how to avoid over $500 billion in mandatory spending cuts and tax hikes for nearly every American on Jan. 1.
“We’ve proposed plans over and over again that Democrats used to support, but now they won’t,” Boehner said. “We need significant spending cuts and real tax reform to address our long-term debt problem.”
House members said they would return between Christmas and New Year’s, if requested.
Boehner’s decision to slide into the background leaves several questions unanswered with the Jan. 1 deadline looming.
Is there an easy way to avoid going over the cliff?
Yes. The Senate passed a bill in August that extends tax cuts for everyone making less than $250,000 ($200,000 for single taxpayers), but it has never gone anywhere in the House. If Democrats in the House could convince 40-50 Republicans to support it, they could get it passed and President Obama already has said he would sign it.
Any chance the House will pass the Senate bill?
Not likely, but it could. At one point, Republican Majority Leader Eric Cantor was bragging that he and Boehner had enough votes to pass Plan B, which means that somewhere around 200 Republican representatives did support some kind of tax increase, though not at the $1 million level. The Democrats would have to agree to some serious spending cuts to get enough Republicans to support the $250,000 level, but anything is possible.
Who’s affected if we go over the cliff?
Everyone. Taxes go up on nearly everyone, and a mandatory $110 billion in spending cuts go into place for domestic and Defense programs. People who receive Medicare and Social Security benefits will feel it, as will anyone associated with the Defense Department.
What is the biggest hit coming?
The Alternative Minimum Tax (AMT). It was originally referred to as the “rich tax,” but if Congress doesn’t do its annual inflation adjustment, it will rope in about 28 million middle-class taxpayers. They’ll pay an average of $3,700 more this year. And the Dec. 31 is a hard deadline, meaning Congress can’t come back sometime next month or next year and retroactively adjust things.
What about the Bush tax cuts?
Officially, those expire on Jan. 1, which means lawmakers could come back anytime in 2013 and bring them back, which they probably will. If not, count on your tax bill going up another $2,500 next year.
Is going off the cliff going to be a complete disaster?
Not necessarily. It forces the president, Congress and the American people to do something they have avoided doing for more than a decade now: Spend wisely. The combination of mandatory spending cuts and tax revenue would knock a little more than $500 billion off the deficit in 2013 and almost $700 billion in 2014. We’d still have a long way to go, but that’s not a bad start.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- Rubin, r. and Rowley, J. (2012, December 21). Boehner Drops ‘Plan b’ as Budget Effort Turns to Disarray. Bloomberg News. Retrieved from http://www.bloomberg.com/news/2012-12-21/boehner-drops-plan-b-as-budget-effort-turns-to-disarray.html
- Green, J. (2012, December 21). Don’t Panic: Fiscal Cliff Chaos is Good News. Businessweek. Retrieved from: http://www.businessweek.com/articles/2012-12-21/dont-panic-fiscal-cliff-chaos-is-good-news