Congress deal averts fiscal cliff

Americans are experiencing some financial reprieve after a bill to avert the so-called “fiscal cliff” was signed into law last week, sparing the University of California from millions of dollars in cuts for federal research funding – at least temporarily.

The nation would have gone over a “fiscal cliff” if Congress did not pass a budget for 2013 by its Jan. 1 deadline, automatically triggering drastic spending cuts and significantly raising taxes on all Americans.

With the clock ticking, Republicans and Democrats from Congress, and President Barack Obama, came together after weeks of negotiations to sign the last-minute bill on Dec. 31.

The deal, only a temporary solution, will raise taxes on married couples that make more than $450,000 a year from 35 to 39.6 percent. Income taxes will remain the same for households that earn less than the threshold.

The bill will delay significant automatic spending cuts in the new year for two months, averting major cuts in federal funding for defense programs and research at institutions of higher education – including the UC.

Christopher Harrington, the spokesman for the UC’s office in Washington, D.C., said the UC system alone avoided $335 million in cuts.

“If we had gone over the ‘fiscal cliff,’ there would have been across-the-board cuts within our UC research and educational programs,” Harrington said. “We hope our UC system will still provide its important educational and health care resources.”

He said his job is not done because the deal only delayed the cuts for two months. As Congress works to draft a more permanent legislation to address cuts in the federal budget, Harrington said he hopes to talk to lawmakers and convince them not to cut funding for the UC.

For the rest of California, experts say the fiscal cliff deal also provided some relief, though not much.

The automatic spending cuts would have brought a loss of 225,000 jobs in the state, according to the Los Angeles County Economic Development Corporation.

But since the bill’s passing, new federal law permanently prohibits allowing federal estate tax revenue to be shared with states such as California. Gov. Jerry Brown and Democratic lawmakers expect a $335 million decrease in revenue over the next year and a half as a result.

According to the Huffington Post, while income taxes under the new bill remain unchanged for 99 percent of Americans, most Americans will still be paying more federal taxes. The bill did not continue a Social Security payroll tax cut. As a result, most American workers will be paying more in taxes from their job.

“I come from an area of low-income families,” said Raymond Mai, a second-year political science student. “These payroll taxes will definitely be felt throughout my community.”

According to the Tax Policy Center, households will experience an average of $1,257 in tax increases.

Lawmakers in both major political parties have said they believe the last-minute bill was needed to help protect the middle class, including college students.

The deal will continue federal financial aid for college students and the American Opportunity Tax Credit for an additional five years. The provision allows tax deductions for up to $2,500 in college expenses to help families pay for college.

Some students said they were glad political leaders collaborated and reached a compromise before the cliff.

“Congress realized this deal was important and I’m happy there was a bipartisan effort to preserve the middle class,” said Christopher LeMarr, a second-year political science student. “The extension of the American Opportunity tax cut will definitely help my family and other college students.”

Others expressed skepticism regarding the plan’s effectiveness to deal with the nation’s problems of national debt and the welfare system.

“Although it was a bipartisan effort, I believe that our politicians are avoiding many big problems such as entitlement reform and the social security system,” said Mai. “Our representatives need to have more ambition and push for solving the real problems.”

The deal may save the national economy from entering into another recession, which would also impact California’s economy, said Jason Sisney, the deputy legislative analyst in state and local finance matters for the Legislative Analyst’s Office, a nonpartison organization that conducts analysis on state laws and budget.

“Especially when the economy is in a fragile state, significant tax increases would have halted any growth,” Sisney said. “The automatic spending cuts certainly would have affected the universities and government programs.”

Looking ahead, Mark Peterson, a UCLA professor of public policy, political science and law, said he sees the deal as a short-term solution to give Republicans and Democrats more time to push for their measures such as raising the debt ceiling and implementing spending cuts.

“Although President Obama and the Democrats seem to have come out of this deal with the most success, their goals for an increased debt ceiling and higher taxes have been put off,” he said. “The Republicans, though, stand against cuts in defense spending and use the debt ceiling to show how high deficit levels are.”

This prolonged disagreement, Sisney said, will lead to more uncertainty among consumers and business.