The failure of the politically divided Congress and Obama White House to address a sizable list of thorny spending and tax issues by year’s end could pose hardships for seniors and a setback for the economy. At the close of 2012 and the start of 2013, a number of major tax cuts are set to expire and automatic spending cuts are set to occur simultaneously in what Federal Reserve Board Chairman Ben Bernanke has called hitting a “fiscal cliff.” So far neither side in Congress or the White House is budging. How could seniors be impacted? Here is a closer look at some of the issues that will affect seniors if Congress and the White House don’t act by the end of 2012:
- Payment of Social Security benefits if the debt limit is reached: Last summer’s battle over raising the debt ceiling almost triggered the first default on U.S. debt in history. The Social Security Trust Fund is the single biggest holder of U.S. debt. An eleventh-hour agreement allowed the payment of Social Security benefits in full and on time last August, but the U.S. Treasury is due to run out of borrowing authority again some time this fall. If that happens, timely payment of Social Security benefits may once again be in doubt.
- Expiration of numerous tax cuts December 31, 2012: Without action, income tax rates will go up on everyone starting January 1, 2013. Tax brackets will rise, and there will be higher capital gains and dividend taxes cutting the income that seniors are counting on from retirement accounts.
- Automatic spending cuts starting January 1, 2013: As part of last summer’s debt limit deal, both parties agreed to $1.2 trillion spending cuts that will automatically take effect if President Obama and Congress did not agree to a 10-year deficit -cutting package. The cuts would be divided between military and domestic programs — including Medicare.
- SSDI insolvency: Recently the Social Security Trustees estimated that the Social Security Disability Trust Fund, which operates separately from the Trust Fund that pays retirement benefits, will be fully insolvent by 2016. To date, Congress has no plan in place for financing disability benefits.
- Medicare on the operating table: Medicare’s future costs are highly uncertain and likely to exceed those shown under current law projections. Recently the CBO bluntly told Congress, “The aging of the U.S. population and the rising costs for healthcare mean that the combination of budget policies that worked in the past cannot be maintained in the future.”
Both a major Medicare overhaul and a plan to cut Social Security cost-of-living adjustments are leading targets of deficit reduction plans. Contact your Members of Congress and let them know that cuts to Social Security and increasing your Medicare costs are an unacceptable means to cutting the deficit. Click here to send an email to your members of Congress.
Sources: “The ‘Fiscal Cliff’ Looms Over Taxes and Spending,” Eric Pianin, The Fiscal Times, May 14, 2012. “CBO Revises Previous Outlook, Forecasts Recession in ‘Fiscal Cliff’ Plunge,” Ben Weyl, Congressional Quarterly, May 22, 2012. “U.S. Economy Headed For ‘Taxmageddon,’” Keith Chrostowski, Kansas City Star, June, 4, 2012.