March 1, 2013

Senate and House leaders met today with President Barack Obama in the White House in an effort to strike a budget deal to avoid $85 billion in budget cuts due to go into effect by the end of the day. The cuts, known as the sequester, were passed in 2011 in an effort to push Congress to strike some kind of reasonable budget deal. Political analysts note that the sequester was deliberately designed to be so draconian (severe and cruel) that Democrats and Republicans would be forced to compromise and forge a better way of balancing the budget.

The Democrats under President Obama’s lead want to implement what he calls a “balanced” approach to deficit reduction, combining cuts with tax raises for upper income Americans. The Republicans demand budget cuts, including cuts to such social programs as Medicare and Medicaid, with no new taxes. The president has criticized Republicans for placing the entire burden on the poor and the middle class while refusing to close “a single tax loophole that benefits the well-off and well-connected.”

Political gridloock in the U.S. Congress has resulted in a series of budget crises, including the "sequester." (Robert H. Glaze, Artstreet)

If the sequester is allowed to go into effect, both defense and domestic spending will be cut across the board, likely throwing hundreds of thousands of people out of work. Economists estimate that the U.S. gross domestic product (GDP) would grow by just 1.4 percent in 2013, compared with 2.2 percent growth in 2012. (GDP is the market value of all final goods and services produced in a country during a given period.) The International Monetary Fund, a United Nations agency, has stated that such drastic cuts could have an impact on global economic recovery from the 2008-2009 recession. Much of Europe, for example, has already fallen back into recession, with unemployment at more than 25 percent in Greece and Spain.

Additional World Book articles:

• John Boehner
• Mitch McConnell
• Nancy Pelosi
• Harry Reid
• Congress of the United States 2011 (a Back in Time article)
• Entitlements—Benefit of doubt (a special report)
• Medicaid in Distress (a special report)

January 2, 2013

The United States House of Representatives passed legislation on January 1 that averted the so-called “fiscal cliff”–dramatic increases in federal income taxes and drastic cuts in federal spending, which theoretically went into effect at 12:01 a.m. on January 1. Eight-five Republicans joined 172 Democrats to vote to raise the federal income tax from 35 percent to 39.6 percent on household income above $400,000 a year for individuals and $450,000 for couples. Earlier in the day, the Senate passed the bill by a vote of 89 to 8. Senate Minority Leader Mitch McConnell and Vice President Joe Biden forged the “fiscal cliff” deal after negotiations between President Barack Obama and House Speaker John Boehner broke down after days of discussion.

Certain tax deductions and credits will also be phased out on income above $250,000. For income below those levels, the bill makes permanent the tax cuts implemented during the George W. Bush presidency. The measure also extends unemployment insurance to 2 million unemployed workers who were on the verge of losing federal assistance. The bill delays for two months the automatic cuts, the so-called sequestered funds, to the Department of Defense and other federal agencies that would otherwise have kicked in on January 2. It does not, however, extend the 2-percent cut to the payroll tax that was enacted to stimulate the economy after the 2008 credit crisis and recession.

The House chamber, where the entire House of Representatives meets, has galleries for the public. Visitors may watch the legislators debate important bills. But most of the actual work of the House is done by committees. (© Brooks Kraft, Corbis)

Political experts regard the legislation as a clear victory for President Obama, who ran for reelection vowing to impose higher taxes on the wealthy. House Republicans were unhappy that the legislation did not significantly cut spending on Medicare, Medicaid, and other social programs that Republicans maintain must be trimmed to bring the national debt under control.

Additional World Book articles:

• Congress of the United States
• Economic Crisis: The Banking Meltdown (a special report)
• Entitlements—Benefit of Doubt  (a special report)
• Medicaid in Distress (a special report)
• Tempest in a Tea Party (a special report)