American Taxpayer Relief Act Of 2012

What is the American Taxpayer Relief Act Of 2012

The American Taxpayer Relief Act of 2012 is a bill signed into law by President Barack Obama on Jan. 2, 2013. The act made many tax cuts introduced between 2001 and 2010 permanent and extended several other forms of tax relief for up to five years.

BREAKING DOWN American Taxpayer Relief Act Of 2012

The American Taxpayer Relief Act of 2012 (ATRA) was passed to avert the enactment of a collection of fiscal austerity measures that had become known as the fiscal cliff on January 1, 2013. Federal Reserve Chair Ben Bernanke coined that term in February 2012 to describe a package of tax increases and spending cuts set forth in the Budget Control Act of 2011. ATRA addressed only the taxation side of the looming fiscal cliff. Federal spending would be considered a few months later as part of the sequester process.

ATRA’s passage prevented the expiration of most of the major tax cuts enacted between 2001 and 2010. It made permanent the tax savings included in the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. ATRA extended through 2017 the tax cuts built into the American Recovery and Reinvestment Act of 2009. Along with these extended tax cuts, ATRA raised payroll taxes for many Americans and reversed cuts for the highest earners that had been passed with the support of the George W. Bush administration. At the time, the White House claimed the the act would reduce the fiscal deficit by $737 billion.

Political Considerations of the American Tax Relief Act of 2012

As the fiscal cliff approached in the final months of 2012, Congress considered three potential courses of action. First, it could take no action and allow the spending cuts and tax increases to take effect. Most economists agree that doing so would have hampered economic growth to the point of sending the U.S. into another recession. The political implications for members of Congress would have been similarly catastrophic. The second option was to pass legislation to cancel the entire austerity package. This path would almost surely have sent the U.S. debt skyward and risked the federal government’s creditworthiness. A third option represented a middle path. This was a combination of spending cuts and tax increases designed to limit the upward pressure on the country’s debt. Republican members of Congress strongly supported tax and spending cuts, and were ultimately persuaded to agree to a handful of politically palatable tax increases. Congress ultimately opted for this third option, passing the tax measures of ATRA with the intention of addressing spending cuts through the subsequent sequestration process.