The fiscal cliff is fast approaching. The White House released a report Thursday in which President Obama said there is no reason to hold families in Florida hostage while Congress debates tax cuts for the highest income earners. With the expiration of the Bush Tax Cuts ahead in 2013, a median-income Florida family of four earning $63,900 could see its income taxes rise by $2,200.
WUFT-FM spoke with the Director of the University of Florida Bureau of Economic and Business Research Chris McCarty about exactly what impact the fiscal cliff could have for the state’s residents, and he said the effect might be more complex than what meets the eye.
On how to define the fiscal cliff:
“It is a set of things … that all happen right around Jan. 1, and in the order of magnitude of the effect, the biggest one is the expiration of the Bush Tax Cuts. Those who remember back when President Bush took office, he pushed for very large tax cuts as sort of an approach to the economy and he pushed those through. They have already expired once and they were extended, I believe, and they are due to expire again. That’s an awful lot of money that the U.S. does not collect in revenue that it used to, so, for example, under President Clinton, tax rates at all levels were higher than they are now.”
On the effect of the Bush Tax Cuts during the first Obama administration
“The Obama administration pushed through some stimulus in the form of a cut to your payroll taxes, so when you get paid from your employer, they withhold money for Social Security and Medicare, and I believe that’s around 6 percent, and I think that was reduced down to 2 percent, so effectively it was a way of putting money in the pockets of everyday Americans very quickly, and it did that, so that is due to expire also in January.”
On how the U.S. got to this point, and how it will carry forward:
“There was a lot of panic and anguish … because the U.S. was in the position of defaulting on its obligations, not just to its citizens, but to its creditors, so finally the folks in the House relented and said, ‘OK, we’ll raise the debt ceiling, but you’ve got to promise that you’ll come up with a way of cutting our spending by $2 trillion over the next decade and you need to form a commission to do that, and if that commission fails, then these cuts will become automatic.’ They formed a commission, the commission failed and now our debt is coming due, and on Jan. 1 of 2013, what is now termed as ‘sequestration’ happens. What that means is $2 trillion gets cut over the next 10 years, a bigger share in the first year than the subsequent nine years.”
George Pappas edited this story online.