The “Fiscal Cliff” and the American Taxpayer Relief Act of 2012

Source: Mindy R. Levit, Margot L. Crandall-Hollick, Jim Hahn, Jim Monke, Janemarie Mulvey, Julie M. Whittaker, Congressional Research Service, CRS Report for Congress, R42884, January 4, 2013

The federal budget deficit has exceeded $1 trillion in each of the last four fiscal years (FY2009-FY2012). Concern over these large deficits, as well as the long-term trajectory of the federal budget, resulted in significant debate during the 112th Congress over how to achieve meaningful deficit reduction and how to implement a plan to stabilize the federal debt. Numerous expiring provisions, across-the-board spending cuts, and other short-term considerations having a major budgetary impact, were scheduled to take effect at the very end of 2012 or in early 2013. This combination of policies, estimated by CBO to reduce the deficit by $502 billion between FY2012 and FY2013, was referred to by some as the “fiscal cliff.” Had these policies taken effect, CBO projected that the economy would have returned to recession in FY2013….Despite the enactment of ATRA, many policy issues affecting the federal budget remain unresolved. Specifically, in early 2013, Congress will likely consider a debt limit increase, additional actions related to the postponed BCA automatic spending reductions, and appropriations for the final six months of FY2013. Finally, long-term fiscal sustainability issues remain unresolved….