Big Wins for Low-Income People in Fiscal Cliff Legislation, But Danger of Devastating Spending Cuts Just Ahead

The American Taxpayers Relief Act (ATRA), signed into law by President Obama on January 2 to avert the fiscal cliff, includes several major victories for low-income people.  At the same time, it sets the stage for a titanic battle over spending cuts that could devastate programs of critical importance to low-income people.

The major victories for low-income people secured by President Obama in ATRA consist of:

On the negative side of the ledger, no action was taken to prevent expiration of the temporary two-percent reduction in the payroll tax. This will significantly reduce take-home pay, driving down consumer demand and resulting in higher unemployment.

ATRA postpones sequestration--large automatic cuts to domestic and defense discretionary spending--until March 1. This is also when the government is expected to exhaust its borrowing limit, which would require Congress to raise the debt ceiling.  

The last time Congress had to raise the debt ceiling, in 2011, House Republicans insisted on a dollar-for-dollar reduction in spending, resulting in $1.5 trillion in spending cuts. The House Republicans have vowed that they again will use the need to raise the debt ceiling as leverage to exact huge spending cuts. This is a potent weapon, since failure to raise the debt limit would cause the United States to default on its obligations, with catastrophic consequences for the worldwide financial system.

The pressure to make big spending cuts is exacerbated by the fact that ATRA wound up raising only $563 billion in new tax revenue over ten years, about $1 trillion less than the $1.6 trillion originally sought by President Obama. The President has said that he will continue to fight for additional revenue through reform of the tax code as part of any future deficit reduction package. 

Those who favor large cuts in government spending can be expected to push a number of proposals that would cause grave harm to low-income people, such as:

The major victories that President Obama secured for low-income people in ATRA should be celebrated. At the same, it is urgent that we immediately confront the looming threat of overwhelming spending cuts.

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Haidee Cabusora - January 8, 2013 2:34 PM

The Financial Clinic knows how critical these supports are for the thousands in NYC and Newark that we serve each year. Persistent unemployment/underemployment, tight credit, and rising costs and stagnant wages place incredible stress on these households. Almost 60 percent of our customers have less than $100 in emergency savings. Far from the demonized "freeloaders" that they are depicted as, these families are playing by the rules and working hard just to keep afloat.

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