U.S. Senator Mike Johanns for the State of Nebraska

An Overview of the Fiscal Cliff

Information on the Fiscal Cliff and Contact Form

Congress has a very limited amount of time to address what has become known as the “fiscal cliff,” a host of expiring tax relief and automatic spending cuts that kick in at the beginning of next year. If Congress doesn’t act to avert the fiscal cliff, Americans will face a tax increase of almost $536 billion a year – the steepest single tax increase in American history. Many experts and the nonpartisan Congressional Budget Office have said going over the cliff will cause our already fragile economy to dip back into a recession. 

Roughly half of these increases come from the expiration of the current income tax rates and investment income tax rates implemented during President George W. Bush’s tenure. Many Nebraskans are rightfully concerned about reinstating the estate or “death” tax. Absent Congressional action, estates will be taxed at a rate of 55 percent with only a $1 million exemption, dramatically expanding the scope of those affected. This would capture many family farms and for some, end their way of life.

Another looming tax hike is the Alternative Minimum Tax, which was originally designed to keep high-income earners from avoiding paying income taxes.  However, the “high income” threshold has been eroded by inflation. Without action it will revert to $45,000. The Congressional Research Service estimates the number of Nebraska households impacted will climb to 134,289 in 2013.

The fiscal cliff demands action. We have to deal with some big problems and time is short. I believe we need a bridge to get us past the cliff so we can devote 2013 to finding a long-term solution that deals with our nation’s debt.

Many would have you believe that simply raising taxes on the rich could solve all our problems. It will not. Even if you did raise taxes on the rich, it would only generate enough money to cover a week’s worth of government spending.

Very little has also been said about entitlements. Entitlement spending and interest on our current debt are the main drivers of government spending. We must find a solution. The solution is much bigger than the year end fiscal cliff and much bigger than a mere discussion of tax hikes. What our country needs, what it deserves, is a long-term solution that ensures Medicare and Social Security are around for future generations, that our tax code is made more efficient and globally competitive, and that addresses our nation’s crippling deficits.

Want to leave a comment for Senator Johanns? Share your ideas by filling out the fiscal cliff contact form.