On January 1, 2013, Congress passed a bipartisan bill called the American Taxpayer Relief Act of 2012. ATRA eliminates or postpones many aspects of the so-called “fiscal cliff.” President Barack Obama signed the bill on January 2.
The fiscal cliff is a term for the expiration of several federal tax cuts and the Budget Control Act of 2011’s automatic across-the-board federal spending cuts, which include programs important to ending homelessness. The Congressional Budget Office found that if all these measures had taken effect on schedule it would have sent the economy back into a recession and substantially increased the unemployment rate.
For people concerned with homelessness, here are some of the important things the new bill does:
The bill postpones spending cuts for two months. The Budget Control Act’s budget sequestration had mandated across-the-board cuts to fiscal year 2013 domestic spending of about eight percent, along with similar cuts to the military budget, to take effect on January 1, 2013. Many programs important to low-income people are exempt, but virtually all programs under the Department of Housing and Urban Development (HUD) are not exempt and would have been cut by sequestration. This would have had an immediate impact on Section 8 and public housing, which have already begun spending FY 2013 funds in most locations. Eventually it would have had a similar impact on virtually all HUD programs. Most programs under the Department of Health and Human Services and other grant programs would have been impacted as well. The National Alliance to End Homelessness predicted that the sequestration’s cuts to HUD homelessness programs would have meant homelessness instead of housing for 145,000 additional people. And it still might.
Unlike many of the spending cuts or tax measures, which provisions in the new bill either extended for a year or made permanent, the sequestration was delayed for only two months, until early March. The exact details on the impact at that point are not yet known. See below for a glimpse at the hard decisions Congress and the Obama Administration will face in March.
The bill allows the payroll tax holiday to end, which means that working people will see their Federal Insurance Contributions Act (FICA) withholding taxes increase from 4.2 percent of their income—instituted by the Recovery and Reinvestment Act of 2009—to the previous level of 6.2 percent, effective immediately.
The bill extends Emergency Unemployment Insurance benefits for another year. Without this deal, around two million people who are experiencing long-term unemployment would have lost unemployment benefits.
The bill extends temporary tax credits that benefit low-income people for a year. These tax credits—which include the Child Tax Credit, certain favorable provisions of the Earned Income Tax Credit, and others—were scheduled to expire.
The bill extends for one year the Medicare “doc fix,” which provides higher reimbursement rates for physicians under the Medicare program.
Finally, the bill allows the nation to avoid, for now, some of the negative effects the fiscal cliff would have had on the economy, especially unemployment levels.
Right now the big headlines are around tax issues. For individuals with incomes of up to $400,000 and couples with incomes of up to $450,000, the bill made temporary income tax reductions permanent. It also allowed tax reductions for individuals and households with higher incomes to expire, effectively raising tax rates for higher-income individuals and households.
The bill made the alternative minimum tax fix permanent, which will prevent many middle-class households from paying higher taxes. At the same time it instituted changes in some deductions and favorable tax rates on capital gains for higher-income households, which will also have the effect of increasing their taxes.
According to the White House the overall result is “the most progressive tax code in decades.”
Sometime around the beginning of March the federal government’s debt will again approach the debt limit that Congress has passed into law. Many members of Congress have said that they will vote for a measure to increase the debt limit only if the measure also cuts spending.
Also scheduled for March is the now-delayed sequestration and the expiration of the temporary FY 2013 appropriations continuing resolution. All this will set the stage for another last-minute scramble, with some in Congress sure to push for big spending cuts that will put the well-being of millions of the poorest and most vulnerable Americans at risk.