You’ve probably been hearing a lot of buzz around town about the “fiscal cliff,” the massive assembly of tax increases and spending cuts that will take effect next month unless President Obama and the Republican Party can agree on a new deficit-reduction deal. As you attempt to wrap your mind around the complex topic of $1.2 trillion in automatic spending cuts taking place in conjunction with a tax hike, we’re sure you are wondering, “How does this affect me?” The following are a list of ways that the fiscal cliff can affect average working-class families.
Bush-era tax cuts, which were extended by President Obama in 2010 as part of a more widespread package meant to protect a fragile economy, will expire. Once in effect, this will increase taxes across all income levels. The biggest increases would be on the highest-income earners. The “payroll tax holiday,” a 2-percentage-point cut in Social Security withholding enacted in 2010 to help stimulate consumer spending, will end. An average-income worker will take home about $20 less a week, which is about a $1,050 deduction from your annual salary. Individuals who are subjected to the Alternative Minimum Tax, an income tax designed to wire rich people, would rise from 4 million to 30 million, which will include many upper middle-income taxpayers.
Spending cuts that were mandated by the budget deal compiled last year to end the standoff over raising the nation’s debt limit will go into effect, which means that emergency unemployment benefits that extend compensation up to 73 weeks after state benefits run out will be cut drastically. This would affect more than 2 million people. The automated budget cuts will also slash vital services for low-income and working families such as Pell Grants, Workforce Investment Act job training programs for teens and young adults, Head Start, WIC, and food stamps.
However, benefits for Social Security, Medicaid and Medicare will go unaffected, which is a great thing for many. Despite this, the administrative side of these forums will be somewhat affected. This means slower processing times, and Medicare service providers will receive a 2 percent payment cut. By law, when Medicare costs outrun economic growth, Congress has only two choices: cut doctors’ pay or appropriate additional funds. In 2003, Congress passed temporary “doc fixes” to keep reimbursements stable. Failure to do so again means a major cut for doctors on top of the 2 percent cut. So in turn, this could mean Medicare payments to doctors will fall 27 percent.
There are some economists who view the “fiscal cliff” as more of a slope than the country just falling over the deep end. If the government is spending less and taxing more, there’s less to stimulate the economy. The nonpartisan Congressional Budget Office predicts a return to a recession. The CBO also projects that jobs on the state and local level will be cut, an increase in unemployment rate from 7.9 percent to 9.1 percent in 2013 and a 0.5 percent drop in the gross domestic product. Although these cuts will affect all ethnic groups, African-Americans make up a large share of the public sector workforce, which could result in African-Americans getting hit the hardest with unemployment.
In this showdown, between Democrats and the Republicans, President Obama must lead the efforts to avoid the fiscal cliff. Both the present and future battles will be over these main issues: taxes, social insurance, federal open spending and investments to create substantial jobs. As a country we have only two directions in which we can go: Investment and prosperity for working families and the middle class, or more breaks for millionaires and CEOs. Over the next few months as things begin to play out, Obama will continue to meet with civic and union leaders to reintegrate his plans for the future and the working-class family.
There is one thing that we all can agree on in the midst of the fiscal cliff: If Republicans and Democrats cannot find common ground for a better plan to cut the budget deficit, there will be serious consequences for us all.
James H. Buford is president of the Urban League of Metropolitan St. Louis Inc.
