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
cliff.

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
Transportation. 

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
concerns.

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
said.

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.