--- title: TIME Explains: The Deal on the Fiscal Cliff | TIME description: Just what's in this fiscal cliff deal and what does it mean for consumers and the economy? TIME Magazine's Rana Forhoohar explains canonical: https://time.com/video/jjGhb9xG/ og:title: TIME Explains: The Deal on the Fiscal Cliff og:description: Just what's in this fiscal cliff deal and what does it mean for consumers and the economy? TIME Magazine's Rana Forhoohar explains og:url: https://time.com/video/jjGhb9xG/ og:image: https://cdn.jwplayer.com/v2/media/jjGhb9xG/poster.jpg?width=720 og:type: video.other twitter:card: summary_large_image twitter:title: TIME Explains: The Deal on the Fiscal Cliff twitter:description: Just what's in this fiscal cliff deal and what does it mean for consumers and the economy? TIME Magazine's Rana Forhoohar explains twitter:image: https://cdn.jwplayer.com/v2/media/jjGhb9xG/poster.jpg?width=720 --- # TIME Explains: The Deal on the Fiscal Cliff > Sponsored content. 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They are at time.com/newsletters and are separate from a paid subscription. ## Video: TIME Explains: The Deal on the Fiscal Cliff [Watch (HLS stream): TIME Explains: The Deal on the Fiscal Cliff](https://cdn.jwplayer.com/manifests/jjGhb9xG.m3u8) (2:25)  _Published 2013-01-06. Just what's in this fiscal cliff deal and what does it mean for consumers and the economy? TIME Magazine's Rana Forhoohar explains_ --- Jul 27, 2023 3:29 PM UTC --- ## More From This Series [All Videos](https://time.com/video/) [TIME's Creative Director on the Meaning of the Magazine's Cover](/video/tjOoBUmK/) ### TIME's Creative Director on the Meaning of the Magazine's Cover [What's the Deal with Prepaid Phones?](/video/oFSOmV3O/) ### What's the Deal with Prepaid Phones? [TIME Explains: The Fiscal Cliff](/video/77b3ZnJj/) ### TIME Explains: The Fiscal Cliff --- ## Transcript On January second, Congress finally passed a deal to prevent us from going over the fiscal cliff. Here's what you need to know. [ MUSIC ] The fiscal cliff was a $ 600 billion group of tax increases and spending cuts. Democrats wanted to get over the cliff by hiking taxes on the rich. And President Obama was lobbying for many months to raise the top tax rates on those making over $ 250, 000 a year. Well, he got his wish. Although the rates will only go up for those making $ 400, 000 a year as individuals or $ 450, 000 as couples. Certain kinds of tax breaks are going to be cut. So, for example, the payroll break, which affects almost every working American, is no longer in effect. And for a family of two earners, making about $ 80, 000 a year, that's going to add to their tax bill by about $ 1700 a year. So, that's a pretty big hit. [ MUSIC ] Rich people are going to see their top tax rate go up from 35 % to 39. 6 % and capital gains tax will be going up from 15 % to 20 %. But what about the spending cuts? Well there weren't any yet, but now we're looking at the looming debt ceiling crisis. Congress was unable to come up with an agreement to allow the debt ceiling to automatically raise. In two months, the government will run out of money, and will need to raise that debt ceiling in order to borrow more to pay back our creditors and keep the government running. Republicans, who had opposed tax hikes for the wealthy all along, are hoping to use this as an opportunity to push through spending cuts on entitlements. Things like Medicare, Medicaid, possibly emergency and insurance benefits and the like. So what does this mean for business, consumers, and the economy? Well, businesses have a lot of cash on their balance sheet, but until we get some real resolution about what spending cuts are gonna look like and actually get a deal on the debt ceiling, they may be reluctant to unleash that, investing in the US and creating jobs. That's probably gonna keep consumer sentiment down and consumer spending flat. But the more quickly we get on with these debates, have an automatic rise in the debt ceiling and get on with the business of creating growth, the faster we can get back to our trend rate of 3 to 4 %. ```json {"@context":"https://schema.org","@type":"VideoObject","name":"TIME Explains: The Deal on the Fiscal Cliff","description":"Just what's in this fiscal cliff deal and what does it mean for consumers and the economy? TIME Magazine's Rana Forhoohar explains","thumbnailUrl":"https://cdn.jwplayer.com/v2/media/jjGhb9xG/poster.jpg?width=720","uploadDate":"2013-01-06T19:16:42.000Z","contentUrl":"https://cdn.jwplayer.com/manifests/jjGhb9xG.m3u8","embedUrl":"https://time.com/video/jjGhb9xG/","duration":"PT2M25S","potentialAction":{"@type":"SeekToAction","target":"https://time.com/video/jjGhb9xG/?jw_start={seek_to_second_number}","startOffset-input":"required name=seek_to_second_number"}} ```