NC Budget and Tax Center

The only four facts you need to know about the Fiscal Slope and the Lame Duck Session of Congress

On Tuesday, Congress returned for its long anticipated lame duck session, and first up on its agenda is addressing the looming “fiscal slope”—the expiration of $5 trillion in tax cuts signed under Presidents Obama and Bush, coupled with the phase-in of $1.2 trillion in automatic spending cuts to federal defense and non-defense programs known as sequestration.

As Congress engages this debate, here are the Four Key Facts you need to know: 

#1.  It’s a “fiscal slope,” not a “fiscal cliff.”  Although the tax cut expirations and spending cuts are scheduled to begin taking effect in January 2013 (leading to overheated rhetoric about a “fiscal cliff”), they will only have a gradual impact on the state’s economy.  Both sequestration and the tax cut expirations phase-in over months and years and can be replaced by Congress at any time.  This is why we call it a “fiscal slope”—because it will only affect the economy gradually.

#2. Who Pays?  Everyone agrees that Congress should address this fiscal slope and long-term debt reduction in a way that is both fiscally responsible and supportive of North Carolina and the country’s struggling economic recovery. An important part of evaluating various proposals will be answering the question of who will pay, working families or the richest among us?  

Under the Senate- plan passed this summer, Congress could extend critical improvements to tax credits that working families rely on, including Child Tax Credits worth more $800 per family, Earned Income Tax Credits worth $500 per family, and the American Opportunity Credit, which assists millions of American college students, while extending only the tax cuts on income under $250,000. If this plan were enacted, everyone in North Carolina would see their tax cuts extended on the portion of their income below $250,000, while only 1.4 percent of residents would see their taxes go up on the amount of their income above $250,000.

#3. Non-defense sequestration cuts will harm North Carolina’s economy as much (or more than) the scheduled defense cuts. Although policy makers have mostly focused on the negative consequences of the defense portion of these cuts for North Carolina’s economy (with estimates as high as $1.5 billion in lost defense contracts and 11,000 in lost jobs), it is also clear that the reductions in non-defense programs will have a negative impact on both the state’s economic health and its budgetary bottom line.  According to recent studies by the U.S. Senate Appropriations Committee, the impact of non-defense sequestration cuts will be devastating for North Carolina:

  • Nearly 450 Head Start jobs across the state will be lost, leaving more than 2,100 fewer children served at a time when the legislature has already cut pre-K programs;
  • 4,000 parents will lose child-care subsidies, putting their jobs at risk;
  • 6,000 teachers will lose their jobs and 51,000 fewer students will be served.
  • 11,000 fewer workers will be trained for future job opportunities

Not only will these spending cuts cause direct job losses and undermine the competitiveness of our state’s workforce, their ripple effects across the economy will generate even more indirect job losses and undermine our state’s recovery.  These job losses result in fewer paychecks to be spent at local businesses, fewer paychecks translate into lower business sales, and lower sales mean less revenue and lower profits from private businesses, which in turn means less hiring and job growth.  They will also create pressure on the state’s non-profit community.

 #4. Allowing Bush-era tax cuts on incomes over $250,000 to expire in January is a downpayment on federal deficit reduction.  The elimination of the tax cuts on income over $250,000 represents a $1 trillion savings over the decade.  Additional decisions, to return to the 2009 estate tax exemptions and raise the capital gains tax rate to 20%, would result in $141 billion and $36 billion in savings over the decade as well.  Taken together, these tax decisions will pay for eliminating sequestration and will contribute towards the goal of a fiscally responsible and balanced approach to long-term deficit reduction.

So as Congress enters its lame duck negotiations, remember these four important facts about the fiscal slope.



  1. Alex

    November 14, 2012 at 9:53 pm

    The October numbers are in, and we now show a $120 billion deficit for the month which is a clear path to another $ trillion dollar+ deficit, the fifth in a row for Obama. That means that tax increases on the wealthy would yield about $ 60-80 billion a year, and actually represent about a half month of the current deficit. It hardly bears even talking about, but is the cornerstone of Obama’s economic plan because it sounds so good to an uninformed electorate, the easy way out as people often say, for folks who can’t even balance their own checkbook. It’s nothing more than a joke ! What is obvious if you do the math is that taxes have to be raised on everyone including the middle class to get out of this mess, along with some painful cuts to the budget. Obama is lying to the American people , and unfortunately most are too gullible to see the truth.

  2. david esmay

    November 15, 2012 at 8:45 am

    So you’re saying increased taxes on the wealth would reduced the deficit? Good. Now let the defense cuts happen and problem solved. Alex is lying to himself, the rest of us, just ignore his neo-con talking points. First of all it is the end of a temporary tax holiday, not an increase. Find another premise to begin your argument.

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