Late on New Year’s Day, Congress passed a bill to avoid sending the country off the fiscal cliff, preventing tax increases on struggling, middle-income families. Despite the political theater, Congress, scrambled to put together a last-minute package that preserves the nation’s recovering economy, while raising real revenues.
The fiscal cliff refers to a number tax increases, spending cuts and expiration of tax exemptions set to take place all at once on January 1, 2013. Had Congress refused to act, middle-income families could have endured a tax increase not seen in 60 years, spending cuts that would have left the poor without the most basic and needed safety nets, such as public health programs, and the expiration of unemployment benefits. Falling off the metaphorical fiscal cliff would have affected the nearly 11 percent of Asian Americans living below the federal poverty line, and the 14 percent of Native Hawaiians and Pacific Islanders struggling to make ends meet.
During the 2012 presidential election, the resounding message from the American people was fairness in tax reform—that all Americans should pay their fair share in taxes. The new law does just that by raising tax rates on individuals with incomes over $400,000 and preserving the current income tax rates for middle-income families and small businesses. This measure protects early 98 percent of Americans from tax hikes, along with 97 percent of small businesses. Individuals making over $400,000 will see an increased tax rate from 35 percent to 39.6 percent and higher taxes on dividends and capital gains.
The deal also includes other fixes and investments in the American economy that will keep us on a path toward prosperity. For example, many families with incomes of $30,000 to $150,000 annually, faced having to pay an additional tax—called an alternative minimum tax (AMT). But Congress permanently fixed what’s called the “AMT patch,” keeping middle-income families from having to pay more in taxes. For parents sending their children to college, Congress extended tax credits for college tuition, for an additional five years, reaffirming President Obama’s dedication to education.
The deal also is mindful of Americans who remain unemployed by extending unemployment benefits for another year. This will be particularly helpful to Asian Americans who have the highest rate of long-term unemployment, according to a study by the Economic Policy Institute. Additionally, the deal helps homeowners who have refinanced or reduced the principal on their mortgages by extending the exemption on the forgiven loan amounts for an additional year.
But the fiscal battles are far from over. Congress has yet to tackle whether or not to raise the federal debt ceiling.
The debt ceiling refers to the maximum amount of money that the United States can borrow, which now stands at $16.4 trillion and was reached on January 1 of this year.
Republicans are again threatening not to raise the debt ceiling, which is extremely irresponsible and can harm the global economy, with which the U.S. is an influential economic powerhouse. Last year, the mere threat of refusing to raise the debt ceiling by Republican leadership in the U.S. House of Representatives resulted in a downgrade of the United States’ credit rating—the first downgrade in our nation’s history.
Round two between Congress and the White House will be over the sequester—automatic cuts set up by Congress to the federal budget applying to both defense and domestic programs. Beginning in March, Congress will once again need to agree on a deal that cuts spending in a balanced way that does not disproportionately affect the most vulnerable in our nation, including the poor, the elderly and our military families and veterans. President Obama has promised to make cuts in a “balanced, responsible way,” however, cuts to sacred safety nets and essential social programs will be at the top of the list for House Republicans. Any deal that includes spending cuts targeted at communities of color and other vulnerable groups will be unacceptable and will only derail our economic progress.
Lastly, Congress will need to adopt a new bill before March 27, 2013 to keep the government up and running, preventing a government shut down that will cause additional financial hardships for many Americans.
While many were unhappy with the temporary solution passed on New Year’s Day, it was a necessary step to keeping our economy on the right path. All we can hope for is a rude awakening by our leaders in Congress and the White House. It is no longer acceptable to play political football with our nation’s economy. At a time of steady economic growth, our leaders must put their differences aside and work together to rebuild our economy for the betterment of our communities.
Mee Moua is the president and executive director of the Asian American Justice Center.