Independent Student Newspaper for the University of Texas at San Antonio

The Paisano

Independent Student Newspaper for the University of Texas at San Antonio

The Paisano

Independent Student Newspaper for the University of Texas at San Antonio

The Paisano

    The Fiscal Cliff: sending the economy over the edge

    Paseo-tax increase(will tallent)

    The New Year brought with it many uncertainties.
    Superstitious people from around the globe prepared themselves for what some
    contended would be the end of humanity. A similar kind of dread was developing
    in Washington D.C. The impending fiscal cliff received copious amounts of
    attention in the media and, while most people were at least vaguely aware of
    its existence, they were confused about the consequences of going over the

    With the end of 2012, the Bush Tax Cuts set in place by
    the second Bush Administration, and extended in 2010 by President Barack Obama,
    were set to expire. These tax cuts came in the form of two bills: The Economic
    Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax
    Relief Reconciliation Act of 2003.

    The first bill mentioned lowered the estate and gift tax
    rates, and also lowered the income tax rate for middle and upper class
    Americans by an average of 30 percent. The Act simplified retirement plans for
    seniors with money in 401K investments.

    The second of the tax cuts served to expedite the process
    of lowering taxes from the first set of cuts and, in addition, lowered taxes on
    capital gains and dividends. These cuts were extended in 2010 when President
    Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization
    and Job Creation Act of 2010.

    The end of Bush-era tax cuts gave cause for many upper and
    middle class Americans to worry that they would see a significant increase in
    taxes on income and capital gains. With Senate and House Republicans demanding
    a reduction on the federal deficit, the expiration of the 2012 budget would
    have also mandated automatic spending cuts across various programs, with
    significant cuts to  departments
    such  as Defense and

    With impending tax increases and
    automatic spending cuts, going over the fiscal cliff would have caused
    dissatisfaction with both Democrats and Republicans. Various budget proposals
    were drafted in Congress, only to be rejected by the Democratic Senate and
    Republican House of Representatives.

    On Jan. 1, 2013, President Obama signed into law the
    American Taxpayer Relief Act of 2012. The Act addressed issues created by the
    end of the Bush-era tax cuts. Had the Act not been signed into law, taxes would
    have been raised significantly, with upper class income earners paying an
    increase of seven percent in income taxes.

    The new law will raise taxes, but at a considerably lower
    rate. According to the Urban Brookings Tax Policy Center, the top one percent
    of income earners will pay a tax increase of 4.5 percentage points. The top 20
    percent’s taxes will increase by 2.5 percentage points, middle class earners
    will pay 1.3 percentage points more and the bottom 20 percent of income earners
    will pay only an increase of 1.1 percentage points.

    This means that single income earners making over $400,000
    and couples earning $450,000 will pay 39.6 percent of their income in taxes in
    2013, as opposed to the 35 percent they paid in 2012.  The Act is also set to phase out credits and tax deductions
    for those earning over $250,000.

    Aside from the expiration of the Bush Tax Cuts, a major
    source of concern was the automatic $110 million in spending cuts to defense if
    a compromise between the House and

    Senate not been reached. In preparation for significant
    budgetary cuts, the Department of Defense preemptively notified more than
    800,000 civil service employees that they faced the possibility of unpaid
    leave. With the passing of the American Taxpayer Relief Act of 2012, Congress
    agreed to delay the billions of dollars in spending cuts for two months to
    allow budget negotiations to continue.

    Shortly after passing the bill through the Senate,
    President Obama announced in a press conference, “While neither Democrats nor
    Republicans got everything they wanted, this agreement is the right thing to do
    for our country and the House should pass it without delay.”

    Bryant Andrade, a freshman political science major, shared
    similar sentiments about the deal.

    “The plan that was agreed upon in Congress was more of a
    compromise than a plan, where both Republicans and Democrats alike were left
    unhappy with the results. One of the scariest parts of the entire plan is that
    the extension of the payroll tax was not passed, which just again means that
    the poor are getting poorer. This could have been a much better plan if there
    wasn’t so much partisan bickering,” Andrade said.

    The cuts to payroll taxes from- 4.2 to 6.2- percent can be
    a cause for concern to the average middle class income earner. According to
    Businessweek, the increase in payroll taxes will result in smaller paychecks. A
    wage earner making $50,000 a year can expect to take home $1,000 less than what
    he or she made in 2012.

    While there was dissatisfaction among both Democrats and
    Republicans, the New York Times reported that the American Taxpayer Relief Act
    of 2012 could be “considered a win for Democrats” and President Obama who
    promised to increase taxes on the wealthy in his run for reelection.

    The American Taxpayer Relief Act may have kept Washington
    from falling over the fiscal cliff; however, many financial concerns remain in
    Congress. Questions over raising the debt ceiling and by how much have been

    Undeclared freshman Cyrus Huncharek expressed frustration
    over many of the inefficiencies shown by Congress before a fiscal cliff
    compromise could be reached. “The deal is simply a band-aid that is just
    prolonging the serious tax reform debate this country needs to have,” Huncharek

    In a press conference on Jan. 14, Monday morning,
    President Obama announced, “Republicans in Congress have two choices here: They
    can act responsibly and pay America’s bills or they can act irresponsibly and
    put America through another economic crisis.”

    Discussions and debate will, as always, continue in
    Congress until a comprehensive plan can be agreed upon to address the nation’s
    deficit. According to the Wall Street Journal, the most prevalent issue that
    Congress now faces revolves around the debt ceiling and whether it should be
    raised. Republicans in the House and Senate stand against raising the debt
    ceiling as a way to force Democrats to cut back on spending. Not raising the
    debt ceiling, however, would cause the U.S. to default on its loans, possibly plunging
    the country into another recession.