The fiscal cliff adds up to more than $600 billion in higher taxes and lower spending in 2013. Of that total, taxes make up about two-thirds of the hit with lower spending making up a third.
The biggest chunk comes from the expiration of all the Bush tax cuts from 2001 and 2003 (which Mr. Obama and Congress extended in 2010) and Congress鈥檚 failure to patch the AMT, or alternative minimum tax, in order to adjust it for inflation. Together, those issues would raise $221 billion in new tax revenue in 2013.
On the spending side, the big-ticket item is known as the sequester. The sequester means across-the-board reductions to nearly all government programs and services (although military personnel and children鈥檚 health care, for example, are exempt). The $109 billion in reductions are divvied up between defense ($55 billion) and nondefense ($45 billion), with the balance coming from reducing the rates at which Medicare pays physicians.
Due to a variety of budgetary factors, the Congressional Budget Office (CBO) estimates that this hit will only amount to $65 billion in the first year, with the balance following in later years.
Other key items include:
- $95 billion in higher taxes from the expiration of President Obama鈥檚 payroll tax cut from 2010, which lowered the Social Security payroll tax by 2 percentage points for two years.
- $65 billion in taxes from so-called 鈥渢ax extenders,鈥� a passel of provisions that Congress routinely extends for (mostly) business interests.
- $26 billion in lower spending from the end of extended unemployment benefits.
- $18 billion in new taxes from Obama鈥檚 health-care law.
- $11 billion in lower payments to Medicare providers stemming from Congress鈥檚 failure to pass what鈥檚 known as the 鈥淒oc Fix,鈥� a patch that covers shortfalls federal Medicare payments.
