NPR

Fiscal Cliff About More Than Just Tax Rates, Spending

With all the attention on tax rates and spending cuts, three big issues are getting little attention in fiscal cliff talks. NPR's Tamara Keith explains how expiring provisions on the payroll tax cut, the alternative minimum tax and unemployment benefits could have major effects on the economy.

Transcript

SCOTT SIMON, BYLINE: This is WEEKEND EDITION from NPR News. I'm Scott Simon. There's been a little apparent progress in talks to avoid the automatic spending cuts and tax increases that are set to take affect after the first of the year. Most of the attention has been focused on the key sticking point, tax rates for wealthier taxpayers. But there are a number of other aspects of the fiscal cliff that could hit millions of people.

NPR congressional reporter Tamara Keith has this look at three pieces of the cliff that you're not hearing much about.

TAMARA KEITH, BYLINE: When the clock strikes midnight on New Year's Eve, two million people will lose their unemployment benefits. That's according to an estimate from the national employment law project and that is if Congress doesn't act to extend the program of emergency benefits for the long-term unemployed. Alan Krueger is chairman of the White House Council of Economic Advisors and he argues unemployment insurance should be extended, even with unemployment rate now down to 7.7 percent.

ALAN KRUEGER: Typically, when the unemployment rate is in the high sevens, we have extended unemployment benefits. Long-term unemployment is still unacceptably high. Most importantly, the Congressional Budget Office has concluded that providing unemployment benefits has the biggest bang for the buck in terms of creating jobs.

KEITH: Estimates are another year of these benefits would cost about 30 billion dollars. Krueger says it would go right into the economy.

KRUEGER: They spend it on their rent. They spend it on food and other essential items. That creates jobs for others and that helps to support the economy when it could use support.

KEITH: But very few people are talking about it, says Josh Bivens at the Economic Policy Institute.

JOSH BIVENS: And that's was distressing because of all the things in the fiscal cliff, that is the one that will cause immediate severe pain to really large numbers of people.

KEITH: Less painful, but certainly noticeable would be the end of the payroll tax holiday. For someone making $50,000 a year, Bivens says it's worked out to about $20 extra in their pocket per week.

BIVENS: If they didn't notice it in the first week or the first pay period or two, you would probably start to notice it by month two or three as, you know, you were having a tougher time covering your bills.

KEITH: Bivens says it would cost about 115 billion dollars to extend the payroll tax holiday through 2013 and it would add the same amount to the economy.

BIVENS: This is a really big part of it. Like, it has much more economy impact than, say, the upper income Bush tax cuts.

KEITH: But on Capitol Hill, there are mixed feelings about it among Democrats and Republicans alike.

REPRESENTATIVE TREY GOWDY: I thought it was supposed to be a holiday. Holidays at some point come to an end.

KEITH: Trey Gowdy is Republican congressman from South Carolina and he's putting voice to concerns expressed by many on the Hill.

GOWDY: This is hard for me to reconcile shortages in Social Security with us continuing to underfund it.

KEITH: And finally, an element of the fiscal cliff that could cause headaches for 25 million taxpayers, the alternative minimum tax. The modern AMT was created in the 1980s to prevent the wealthy from avoiding taxes by claiming a ton of deductions, but it wasn't indexed to inflation. Without a fix from Congress, people earning as little as $75,000 a year could be hit, says Roberton Williams of the Tax Policy Center.

ROBERTON WILLIAMS: Our accountants will be saying, got a surprise for you, Charlie, you're gonna owe more tax this year because the AMT hit you.

KEITH: This is a routine thing. Every year, Congress applies a patch to the AMT, but they haven't done it yet for 2012 and now it's wrapped up in the larger negotiations over the fiscal cliff.

WILLIAMS: About 4.5 million people will be subject to the tax this year. If Congress doesn't extend that exemption, that number will balloon to about 30 million people.

KEITH: And they'll be very grumpy. Of our three under the radar year-end expirations, this is the one everyone agrees will be taken care of. It's just a question of when. Tamara Keith, NPR News, the Capitol. Transcript provided by NPR, Copyright NPR.

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