The Fiscal Cliff Deal: What Changed and What's Still in Play

Jan 02, 2013

By Elizabeth Lower-Basch

As has been widely reported, due to last-minute Congressional action, the so-called "fiscal cliff" has been avoided with the passage of the American Taxpayer Relief Act (ATRA) of 2012.  However, some taxes did go up on January 1, and the automatic, across the board budget cuts known as sequestration have only been postponed, not prevented.  Here's a handy guide to what happened to programs and taxes that affect low-income people, and what's still in play.

WHAT HAS BEEN EXTENDED

• Federal Unemployment Benefits were continued for the duration of 2013. In the absence of this extension, more than 2 million workers would have lost benefits this week, and millions more would have been prematurely cut off over the next year. Note that this does not mean all workers currently receiving benefits will continue to receive them all year. The maximum duration of federal unemployment benefits is based on each state's unemployment rate, and thus is likely to drop over the year as the economy recovers.
• In addition to the permanent extension of the Bush-era tax cuts for all but the highest income households, the ATRA extended the improvements to the Earned Income Tax Credit (EITC) and the refundable Child Tax Credit (CTC) for five more years. These improvements, first passed as part of the American Recovery and Reinvestment Act (ARRA) of 2009 lifted 1.5 million people out of poverty in 2010 and lessened the severity of poverty for nearly 15 million others. The partially refundable American Opportunity Tax Credit (AOTC), which helps students pay for college, was also extended for five years.

• The ATRA also extended the Farm Bill for one year, without making any changes to the Supplemental Nutritional Assistance Program (SNAP, or food stamps).

WHAT HAS ENDED

• The temporary reduction of employee payroll taxes from 6.2 percent of earnings to 4.2 percent was not extended. This "payroll tax holiday" was in place during both 2011 and 2012, replacing the Make Work Pay tax credit that was part of ARRA. Low-income people, who are likely to live paycheck to paycheck, will feel the loss of the payroll tax credit with their first paychecks.

WHAT HAS BEEN POSTPONED

• Congress agreed to postpone the automatic spending cuts known as sequestration for two months. If these had taken effect, they would have cut spending by over eight percent for many programs that serve low-income individuals and families, including job training and education programs, WIC, Head Start, and many more.

However, when the new Congress is sworn in on January 3, debate will immediately turn to how to reduce the deficit and avoid sequestration.  House Republicans have already said that they believe this should be done without any further revenue increases and are likely to return to the proposals they passed repeatedly in 2012 that would impose deep and harmful cuts on SNAP, Medicaid and other programs serving low-income individuals and families. The House Republicans are threatening to refuse to raise the "debt ceiling," the legal limit on how much the United States can borrow, unless President Obama agrees to their demands.  If the debt ceiling is not raised to match the spending obligations that Congress has already approved, the U.S. would default on its obligations, causing deep damage to the economy.  President Obama has said that he will not negotiate on this basis, and has called on Congress to replace the sequester with balanced deficit reduction, including both revenue increases and spending cuts.

While we can breathe a sigh of relief over avoiding a drop off the cliff, there is no time to rest.   We must let policymakers and opinion leaders know that it is unacceptable to reduce the deficit by targeting the most vulnerable and that it is outrageous to hold the entire economy hostage.  In this season of resolutions, we must resolve to stand up for those whose voices are rarely heard.