Components of the Fiscal Cliff Deal

The Editors | Jan. 4, 2013, 1:58 p.m.

Faced with a New Year's deadline, Congress and the White House reached an last-minute agreement to avert the impending tax hikes and spending cuts collectively known as the fiscal cliff. The package, signed into law on Jan. 2, makes the Bush-era tax cuts permanent for most Americans while delaying the onset of the sequester by two months.

The Congressional Budget Office estimates that extending the tax cuts without limiting spending will add $4 trillion to the deficit over the next decade, as outlined above. Congress came up with offsets to defray the costs of the two-month reprieve from automatic spending cuts and the one-year delay of a scheduled reduction in Medicare payment rates to physicians. A one-year extension of emergency unemployment benefits was not paid for.

Unlike the 2010 compromise between President Obama and Congressional Republicans, which extended all rates for two years, the fiscal cliff agreement makes the Bush-era rates on ordinary income, dividends and capital gains permanent for individuals making less than $400,000. The income threshold for the alternative minimum tax, which previously had to be patched each year to keep up with inflation, has now been permanently fixed, a provision that  accounts for nearly half the deal's total cost.

Other components of the new law are far less permanent. Most prominently, $85 billion in automatic cuts are now set to take effect March 1, around the same time that the Treasury Department will run out of “extraordinary measures” to delay default on the government’s debt. A partial farm bill extension that is part of the package will expire Sept. 30, while the fix to Medicare payment rates and the extension of dozens of tax provisions will run out at the end of the year.

About the Data

All cost and savings estimates were produced by the Congressional Budget Office and the Joint Committee on Taxation. The two relevant sources from CBO are a summary of budgetary effects and a detailed breakdown of law’s health care provisions. For a complete list of all tax provisions, including all 52 tax extenders, see the JCT report.