Congress and President Barack Obama are locked in a financial game of chicken, with the looming fiscal cliff threatening to raise taxes on every American and, potentially, throw the economy back into recession.
But is the so-called "fiscal cliff" really akin to financial meltdown? What would the sequester mean for Medicare and Medicaid? And what are the chances that Congress will do nothing more than change the Jan. 1 deadline?
Todd Zwillich, the Takeaway's Washington correspondent, said the Americans are, fundamentally, being held hostage by politicians inability to reach an agreement that balances the needs and interests of balancing the budget and keeping the economy growing.
Zwillich answered submitted questions about the fiscal cliff, and what it means to American taxpayers.
How will Medicaid recipients be affected? What about people with developmental disabilities on SSI?
There's good news and bad news here for people who rely on Medicaid. The good news first: Medicaid is exempt from the sequester that will go into effect on Jan. 1, if Congress is unable to come to a deal. But the bad news is that if a deal is made, Republicans want Medicaid on the table if they're going to agree to tax hikes.
"They think that Medicaid is a major driver of cost," Zwillich said. "In fact, in the states, it is."
If a compromise isn't agreed upon and we do go off this fiscal cliff, will I see a difference in my take home pay right away in January?
If we do go over the so-called cliff, everybody's tax rates will go up. But the Secretary of the Treasury has the power to adjust the amount of withholding that the IRS, or your employer, withholds from your taxes.
"We may pass Jan. 1 with no deal, but the Secretary of the Treasury may know that they're probably going to get a deal in the next month or two," Zwillich said.
It would become very complicated for withholding if the tax rates were raised and then lowered again. This will mean that, for middle-class tax payers, their income tax will likely be unchanged come Jan. 1, deal or no deal. The payroll tax, however? That's probably going back up.
What does the fiscal cliff mean for my federal student loans?
Right now, people who make less than $60,000 a year receive a tax deduction on their student loans. If we go over the fiscal cliff, the threshold to receive deductions will be lowered to $40,000 per year.
"If you make around $50,000, and you're able to write off interest on your student loans right now, you might be left in the lurch if there's no deal after Jan. 1," Zwillich said.
Give me three reasons why going over the fiscal cliff will be good for the economy.
"It's hard to imagine why going over the fiscal cliff would be good for the economy," Zwillich said. "The Congressional Budget Office has made it clear that it would be very, very bad."
However, he said the fiscal cliff is a bit of a misnomer.
"The economy doesn't tank the next day," Zwillich said.
We could fall into another recession, but it wouldn't happen right away.
What are the chances that Congress will do nothing?
"The sequester is really the big thing that's preventing Congress from doing that," Zwillich said. "That's $1.2 billion of automatic spending cuts on Jan. 1 if they do nothing."
Who coined the phrase "fiscal cliff" anyway?
"Of course, people in the media took it and ran with it," Zwillich said. "Politicians love it, because it's dramatic, it has a deadline, and there's death at the bottom."