Congress is holding tax payers hostage, as the looming fiscal cliff threatens to throw us back into recession. But is the so-called "fiscal cliff" really akin to financial meltdown? What would the sequester mean for Medicare and Medicaid? And what are the chances that Congress will do nothing more than change the January 1 deadline?
Those are just a few of the questions posed by Takeaway listeners about the looming fiscal cliff. Todd Zwillich, the Takeaway's Washington correspondent, has the answers to these questions and more.
How will Medicaid recipients be affected? What about people with developmental disabilities on SSI?
There's good news and bad news here for people who rely on Medicaid. The good news first: Medicaid is exempt from the sequester that will go into effect on January 1, 2013, if Congress is unable to come to a deal. But the bad news is that if a deal is made, Republicans want Medicaid on the table if they're going to agree to tax hikes. "They think that Medicaid is a major driver of cost," Todd says. "In fact, in the states, it is."
If a compromise isn't agreed upon and we do go off this fiscal cliff, will I see a difference in my take home pay right away in January?
If we do go over the so-called cliff, everybody's tax rates will go up. But the Secretary of the Treasury has the power to adjust the amount of withholding that the IRS, or your employer, withholds from your taxes. "We may pass January 1 with no deal, but the Secretary of the Treasury may know that they're probably going to get a deal in the next month or two," Todd says. It would become very complicated for withholding if the tax rates were raised and then lowered again. This will mean that, for middle-class tax payers, their income tax will likely be unchanged come January 1, deal or no deal. The payroll tax, however? That's probably going back up.
What does the fiscal cliff mean for my federal student loans?
Right now, people who make less than $60,000 a year receive a tax deduction on their student loans. If we go over the fiscal cliff, the threshold to receive deductions will be lowered to $40,000 per annum. "If you make around $50,000, and you're able to write off interest on your student loans right now, you might be left in the lurch if there's no deal after January 1," Todd says.
Give me three reasons why going over the fiscal cliff will be good for the economy.
"It's hard to imagine why going over the fiscal cliff would be good for the economy," Todd says. "The Congressional Budget Office has made it clear that it would be very, very bad." However, Todd does say that the fiscal cliff is a bit of a misnomer. "The economy doesn't tank the next day," Todd says. We could fall into another recession, but it wouldn't happen right away.
What are the chances that Congress will do nothing?
Todd says the chances are quite low. "The sequester is really the big thing that's preventing Congress from doing that," Todd says. "That's $1.2 billion of automatic spending cuts on January 1st if they do nothing."
Who coined the phrase "fiscal cliff" anyway?
Not to name names, but, well, Ben Bernanke. "Of course, people in the media took it and ran with it," Todd says. "Politicians love it, because it's dramatic, it has a deadline, and there's death at the bottom."