Here’s a quick rundown on three of the most impenetrable terms related to the fiscal cliff. For more, see our post, The Fiscal Cliff In Three And A Half Graphics.
The sequester is a bundle of spending cuts that kick in automatically next year unless Congress acts to block them. This makes sense, given that sequester means “to set aside.” It’s like a bunch of money is getting set aside and not spent.
But when I looked up “sequester” in the OED, a much more obscure definition seemed to capture the feel of the broader political mess that’s happening here:
A jelly-like mass gradually hardens and becomes ossified, surrounds, like a sheath,..the necrotic bone, which is then called a sequester.
2. Doc Fix
Two words: “Doc,” as in “doctor.” So far, so good. But what is “fix” doing there? Is something broken?
Yes. In particular, the formula Congress uses to determine Medicare payments to doctors is broken.
Years ago, Congress created a formula to limit the annual increases in Medicare payments to doctors. But when it came time to actually adhere to the formula, Congress balked. But instead of getting rid of the formula altogether, Congress passed a temporary fix.
This happened again and again over the years. The most recent temporary patch is set to expire at the end of this year. If it expires, Medicare payments to doctors would fall by 27 percent.
3. AMT Patch
It’s not a Boy Scout merit badge. It’s a weird tax thing Congress does every year.
The alternative minimum tax was created as a tax on people with high incomes who met certain criteria. But it wasn’t indexed to inflation. As a result, it tends to cover more and more people every year, as inflation drives up wages for everyone.
Congress keeps intervening — patching the law, if you will — and passing temporary, one-year measures that prevent the AMT from applying to middle-income workers.
If Congress fails to patch the AMT, it will mean a tax increase for millions of households.