The fiscal cliff explained in 7 simple graphs

By Ellie Ismailidou

As December 31st 2012 approaches, everybody seems to be talking about a great disaster looming for American families: the “fiscal cliff”. Even as everybody talks about its devastating effects on American households, how much do we really know about the “fiscal cliff”? Here are 7 graphs that will help you get a better understanding of it.

For total beginners, NPR created these very simple graphs to take a first look at the fiscal cliff, using data from the non-partisan Committee for a Responsible Federal Budget.

1. The “fiscal cliff” is the result of an increase in federal taxes combined with deep federal spending cuts. It will take place on December 31st 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.

2. The increase in taxes is a result of:
-an increase of the people affected by the Alternative Minimum Tax,
-the expiration of the Bush-era federal income tax cuts. This would bring rates back to the ones effective in 2003
-the expiration of the so-called “payroll tax holiday”, mandated by President Obama. This will lead to a 2% payroll tax increase for employees.
-the expiration of some tax deductions and credits for businesses
-new taxes related to President Obama’s health care law.
3. When Congress went through the Debt Ceiling Crisis in the summer of 2011 a tentative deal was reached. Deep cuts in federal spending are an important part of this deal. The same cuts are an significant part of the “fiscal cliff”



 4.   The so-called “Taxmageddon” will result in a huge increase in taxes for American households.  The conservative Heritage Foundation has created this interactive map of the US, calculating the average tax increase per tax return by state.


 5. The tax increases will affect everyone. However, not all income brackets will be affected equally. This report by the non-partisan Tax Policy Center shows that the top 1% will suffer a bigger percentage increase.

6. The evil twin of tax cuts is the federal debt. Members of Congress know that everything comes with a cost. 
The downside of “Taxmageddon” is pretty obvious: a huge increase in tax burdens.
The upside of “Taxmageddon” is that the federal debt will be significantly reduced.

This January 2012 report by the Congressional Budget Office (CBO) compares two scenarios and their future effects on the federal debt.
The “baseline projection” assumes that the law, as currently written, will take effect, resulting in a massive tax increase.
The “alternative fiscal scenario” is what would happen if current policies (e.g. Tax cuts, lower rates etc.) are extended.



7. Analysts try to put the fiscal cliff in perspective. In this report the Center on Budget and Policy Priorities uses data by the Congressional Budget Office to estimate the effects on the deficit that different policies by Presidents George W. Bush and Barack Obama have caused.