With the self imposed fiscal cliff finally in the rear view, the next showdown should be arriving sometime soon within the next few months. Many poor and middle class Chicagoans benefited from the fiscal deal but the looming standoff over the debt ceiling and entitlement cuts could prove to undo any gains made.
Taxes on earners above $400,000 ($450,000 for couples) will increase 4.6% on their income. Those below this threshold will see their income tax rate stay the same. This is a definite positive for many Chicagoans. Many lower income families also will benefit from the extension of unemployment insurance, Child Tax Credit, and Tuition Credit.
While this may paint a rosy picture for the future of many ordinary citizens, the devil is perhaps in the details. The payroll tax holiday will lapse for all earners, which will hit lower income citizens disproportionately harder than their more wealthy counterparts. The payroll tax increase will certainly punch a hole in the pocketbook, but the situation could possibly get worse within the coming weeks and months.
The all important $1 trillion sequester still must be dealt with, as does tax reform and spending cuts. Any spending cuts at all will likely hurt the economy in some fashion, but more importantly, government services to the poor will likely be hurt as well. House Republicans are looking at getting $1 trillion in entitlement cuts, which historically means cuts to government programs like Medicare, Social Security, and Medicaid.
All of this depends on how far both the President and Congress are willing to negotiate over the debt ceiling. If Republicans are successful in getting much of their initial demands, then millions of Chicagoans will feel the hit rather immediately. Under any future plan, there will be some sort of financial sacrifice coming from each economic class, but Chicagoans shouldn't take a breather just yet because there are still more cuts to come.
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