I was already aware of four challenges to the economy and policy facing us on or about January 1, 2013:
On January 1, 2013, the 2-year extension of the Bush tax cuts is scheduled to expire. If it does, income tax rates will increase for nearly all taxpayers. On the same day, the current patch to Medicare’s Sustainable Growth Rate (SGR) expires, threatening to decrease payments to physicians by about 30%. Furthermore, as agreed on during last summer’s showdown over the US debt ceiling, $1.2 billion in cuts to defense and other domestic spending, including a 2% cut to Medicare, are scheduled to commence at the turn of the year. As if that’s not enough, the current debt ceiling will probably be reached this fall or early winter, forcing another potentially contentious vote to raise it.
Even if the Bush tax cuts are extended and the sequester delayed, a huge amount of fiscal drag remains in place. They include the expiration of the payroll tax cut, the expiration of extended unemployment insurance benefits, imposition of a new 3.8% Medicare investment tax on the wealthy.
Fortunately, we have efficient and constructive political and legislative systems that can easily handle all these challenges. What could possibly go wrong?
[Cross-posted at The Incidental Economist]