Posted in the Mount Sterling Forum
#1 Jan 11, 2013
The federal budget deficit has exceeded $1 trillion in each of the last four fiscal years (FY2009- FY2012). Concern over these large deficits, as well as the long-term trajectory of the federal budget, resulted in significant debate during the 112th Congress over how to achieve meaningful deficit reduction and how to implement a plan to stabilize the federal debt. Numerous expiring provisions, across-the-board spending cuts, and other short-term considerations having a major budgetary impact, were scheduled to take effect at the very end of 2012 or in early 2013. This combination of policies, estimated by CBO to reduce the deficit by $502 billion between FY2012 and FY2013, was referred to by some as the “fiscal cliff.” Had these policies taken effect, CBO projected that the economy would have returned to recession in FY2013.
On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (ATRA; H.R. 8 as enacted), which addressed many of these tax and spending policies. As Congress changed the trajectory of these policies by increasing spending and decreasing revenue, these policies have increased the deficit relative to the current law baseline. The provisions of ATRA were estimated by CBO to increase the budget deficit by $330 billion in FY2013 and nearly $4 trillion over the FY2013-FY2022 period.
ATRA addressed several revenue provisions that had been set to expire at the end of 2012. These included the “Bush-era tax cuts,” provisions related to the estate tax, certain tax provisions enacted or expanded as part of the American Recovery and Reinvestment Act of 2009, the Alternative Minimum Tax (AMT), and a number of temporary tax provisions (also known as “tax extenders”). ATRA permanently extended a modified version of the “Bush-era tax cuts” and the estate tax, as well as a permanent AMT patch. The law also temporarily extended the ARRA tax provisions and a variety of “tax extenders.” ATRA did not extend the two-percentage-point reduction in the Social Security payroll tax, which expired at the end of 2012, or delay the Affordable Care Act (ACA) taxes on higher-income tax filers, which are scheduled to take effect in 2013. Combined, these provisions were estimated by CBO and JCT to increase the deficit by $280 billion in FY2013 and $3.93 trillion over the FY2013-FY2022 period.
In addition to these revenue provisions, ATRA also addressed several spending policies that were scheduled to reduce spending beginning in FY2013. It extended the federal share of extended benefit payments for unemployment and postponed the expiration of the authorization for temporary emergency unemployment benefits through 2013. It delayed a reduction in payments to Medicare physicians under the Sustainable Growth Rate (SGR) system through 2013. It eliminated the first two months of the automatic spending cuts enacted as part of the Budget Control Act of 2011 (BCA; P.L. 112-25), postponing their onset from January 2 to March 1. It extended the 2008 farm bill through 2013. These provisions, some of which were offset, were estimated by CBO to increase the deficit by $48 billion in FY2013 and $34 billion over the FY2013-FY2022 period.
Despite the enactment of ATRA, many policy issues affecting the federal budget remain unresolved. Specifically, in early 2013, Congress will likely consider a debt limit increase, additional actions related to the postponed BCA automatic spending reductions, and appropriations for the final six months of FY2013. Finally, long-term fiscal sustainability issues remain unresolved.
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