What Happened With The Fiscal Cliff?

Originally posted on ModernFAQs.

The fiscal cliff has been averted -- at least for the time being -- after a year of worrying, debating, and discussing. Congress and President Obama decided to raise taxes a bit, delay the scheduled budget cuts that promised to crush the economy, and create a plan that will delay (for now) a total economic meltdown.

The “fiscal cliff” is the term used to describe the situation our government faced at the end of 2012, when the terms of the Budget Control Act of 2011 were scheduled to go into effect (December 31 at midnight). In the beginning of the 2013, about $500 billion in tax increases and $200 billion in spending cuts were scheduled to take effect. Now that the House has passed a Senate deal to avert the fiscal cliff, it will become law when President Obama signs it.

According to CNN, there are five things to know about the complex bill, and what it does and doesn't do:

1. No side won: Republicans accepted higher taxes for the wealthiest Americans. Democrats accepted a higher threshold for how much income will face a higher tax rate. President Obama broke a vow to raise tax rates on annual household income over $250,000 and individual income over $200,000.

2. We may have a new definition of the 'wealthiest': President Obama made raising tax rates on the top 2% of earners in America a centerpiece of his re-election campaign. The 2% figure includes those with income over $250,000. The compromise bill changes that figure. Tax rates will go up only for individuals with income over $400,000 and families earning more than $450,000. The deal does, however, cap some deductions for individuals making $250,000 and for married couples making $300,000. That allows the president bragging rights to say the deal raises taxes on people at those income levels. But he said just weeks ago that capping deductions at the $250,000 level would not be enough and that tax rates would rise.

3. Three more fiscal cliffs are on the way: The deal delays the sequester, a series of automatic cuts in federal spending, for two months. In the meantime, the Senate plan calls for $12 billion in new revenue and another $12 billion in spending cuts. The spending cuts are to be split between defense and nondefense spending. The other two: the debt ceiling and a continuing budget resolution.

4. The majority of House Republicans opposed it: Although House Speaker John Boehner supported the bill, the No. 2 Republican in the chamber, Majority Leader Eric Cantor, opposed it, as did most Republicans in the House. So while the Senate vote was an overwhelming 89 to 8, the House vote was 257 to 167. The vast majority of House Democrats supported the bill.

5. Your paycheck is still likely to shrink: The deal does not address an increase in payroll taxes. No legislation to address the fiscal cliff is expected to. Now, the cut on those taxes has expired. In monetary terms, those earning $30,000 a year will take home $50 less per month, and those earning $113,700 will lose $189.50 a month.