Fiscal cliff: Economic winners and losers
The American Taxpayer Relief Act kept the US from going off the fiscal cliff. Once the bill becomes law, who will gain - and who will feel the pinch?
The political ramifications of the 2012 American Taxpayer Relief Act - also known as the bill that kept the US from falling off the fiscal cliff - are still shaking out. While the Act pushed through a raft of tax hikes (favoured by the Democrats) without doing much to address spending cuts (promoted by the Republicans) parties on each side say they achieved a victory. Others say their team gave up too much, too easily.
But the economic winners and losers of the bill are starting to become clear. Here's a look at eight groups who will feel their fortunes shift under the new act.
NASCAR: The car-racing giant stands to get $70m (£43m) in tax breaks due to the extension of a 2004 law. Though some saw the fiscal cliff debate as a way to pare back an unwieldy tax code, there were several tax incentives that made it through this bill, according to Politico - including those for the film industry, Puerto Rican rum, and railroad companies. "I don't know how they got there, but in every bill that goes through congress there's always something under the Christmas tree," says Robert Litan, research director for Bloomberg Government. Still, he says, these extras are "minor" compared to the tax breaks built into the rest of the bill.
What about the average Joe?
While average Americans won't see a rise in income taxes, many will also see a smaller paycheck thanks to the elimination of the payroll tax holiday. "The payroll tax cut was cutting 2% out of payroll that was going into social security and replacing with general revenues," says Randall Holcombe, professor of economics at Florida State University. "Thinking about trying to close the deficit, that payroll tax cut seemed like a bad idea." Now it's gone, and paychecks coming out this Friday will be that much smaller.
Milk drinkers: The so-called "dairy cliff" was averted when Congress passed a nine-month extension of the Farm Bill, which had mostly expired in September. But one provision expired on 31 December. Without it, the price of milk would revert to being set by an archaic formula, sending dairy costs skyrocketing.
Semi-wealthy people: Those who make between $250,000 and $400,000 a year (or $450,000 per household) have something to celebrate. "Those were people who, until very recently, thought their rates were going to go up," says Benjamin Passty, research assistant professor at the Economics Center at the University of Cincinnati. Instead, they'll see a permanent extension of the Bush tax cuts.
Those with a wealthy, elderly bachelor uncle: The estate tax, which taxes income and property received in an inheritance or through a gift from family, was a big target for Democrats looking to raise revenue. There was talk of scaling it back to Clinton-era levels, in which all gifts over $1m were subject to a 55% tax. But now gifts under $5.12m remain free from tax, while the rate of taxed gifts go from 35 to 40%. "That's a tax burden that would skew towards the very wealthy," says Prof Passty. Those who hope to inherit their parent's billion-dollar bank account will feel more of a pinch, but anyone hoping to get just a piece of Great Uncle Archibald's dwindling, but still respectable estate, can spend their new nest egg without fear of taxation.
Cincinnati, Ohio, and other cities that depend on military and defence contracts to bolster their economy. "We're one of the localities that would benefit by having strong defence spending," says Passty. "Those defence dollars do translate into specific economic benefits to some regions." Had the US gone over the cliff, defence spending was to take a big hit. As it stands now, the decision has been put off - but only for two months. So while the aerospace, engineering and other jobs remain, so too does uncertainty about the future.
The long-term unemployed: Traditionally, benefits for those out of work lasted only half a year, but during the recession Obama pushed to extend those benefits to 99 weeks. "If they hadn't made the deal, people who had the extended unemployment, their benefits would have expired," says Randall Holcombe, professor of economics at Florida State University.
Mitt Romney: The very wealthy will pay more in taxes thanks to tax cuts being eliminated for individuals over $400,000. Those people will also be hit with an increased tax on their investments. Their capital gains taxes will go from 15 to 20%. "For most people there's no impact. There's a 5% increase in the rate who are in that top 1%," says Holcombe. For those like former Republican presidential candidate Mitt Romney who make much of their money through capital gains, that increase will add up.
Hospitals: The Taxpayer Relief Act prevented a 27% cut to doctors for treatment they provide Medicare patients. That would be a huge hit for providers who already get less for Medicare patients versus those on private insurance. But the cut was prevented by making cuts elsewhere - and as a result, hospitals will have to pick up more of the slack with less government money.
Members of Congress: As well as the ire of a nation heaped on their shoulders for this patched-up, last-minute deal that ducks the difficult decisions, members of Congress also face a pay freeze under the terms of the bill. Just don't expect to hear any violins playing in sympathy.