Here's how it happened. Congress couldn't agree on tax hikes and spending cuts to cut the debt. So they played a game of chicken with themselves. They passed a law saying if no agreement could be reached by new year's eve, billions and billions in spending cuts and trax hikes take effect automatically.
The fancy word for this is, "Sequestration." It's also called, the fiscal cliff. All the Bush tax cuts, for everyone, will expire. The top income tax rate goes from 34 percent to 39 and a half percent. The amount taken out of your paycheck for social security taxes rises to over six per-cent. The dreaded alternative minimum tax will raise income taxes for millions more.
The spending cuts will come from only 30 percent of the federal budget. That's because 70 percent of federal spending on things like social security and medicare. can't be touched. That leaves other domestic programs ranging from the EPA to the Centers for Disease Control. It's also leaves Pentagon spending. So you can expect big immediate across the board defense cuts.
Democrats and republicans couldn't agree. So, they passed this to do it for them automatically.Maybe this is what all the people who've been screaming about cutting federal spending and the deficit wanted. Deep spending cuts. Serious tax hikes. That'll help bring the budget into balance. It could also destroy the fragile economic recovery.
I'm Charles Jaco and that's Jacology.