Here's a quick rundown on three of the most impenetrable terms related to the fiscal cliff. For more, see our post, The Fiscal Cliff In Three And A Half Graphics.
The sequester is a bundle of spending cuts that kick in automatically next year unless Congress acts to block them. This makes sense, given that sequester means "to set aside." It's like a bunch of money is getting set aside and not spent.
But when I looked up "sequester" in the OED, a much more obscure definition seemed to capture the feel of the broader political mess that's happening here:
A jelly-like mass gradually hardens and becomes ossified, surrounds, like a sheath,..the necrotic bone, which is then called a sequester.
2. Doc Fix
Two words: "Doc," as in "doctor." So far, so good. But what is "fix" doing there? Is something broken?
Yes. In particular, the formula Congress uses to determine Medicare payments to doctors is broken.
Years ago, Congress created a formula to limit the annual increases in Medicare payments to doctors. But when it came time to actually adhere to the formula, Congress balked. But instead of getting rid of the formula altogether, Congress passed a temporary fix.
This happened again and again over the years. The most recent temporary patch is set to expire at the end of this year. If it expires, Medicare payments to doctors would fall by 27 percent.
3. AMT Patch
It's not a Boy Scout merit badge. It's a weird tax thing Congress does every year.
The alternative minimum tax was created as a tax on people with high incomes who met certain criteria. But it wasn't indexed to inflation. As a result, it tends to cover more and more people every year, as inflation drives up wages for everyone.
Congress keeps intervening — patching the law, if you will — and passing temporary, one-year measures that prevent the AMT from applying to middle-income workers.
If Congress fails to patch the AMT, it will mean a tax increase for millions of households.
SCOTT SIMON, HOST:
The debate over the fiscal cliff has a vocabulary all its own with the phrases pinging back and forth that a lot of us don't know, or even worse, think we do, but might be wrong. So, we've asked David Kestenbaum of Planet Money to join us for a brief explainer. David, thanks so much for being with us.
DAVID KESTENBAUM, BYLINE: Sure thing.
SIMON: Let's start with the obvious one, the so-called fiscal cliff. There's been a lot of talk about whether or not that phrase is just a little dramatic. Where does it come from?
KESTENBAUM: Weirdly, it was popularized by a guy who's not known as being quotable. In fact, his job is to not say anything very exciting. I'm talking, of course, about Ben Bernanke, the chairman of the Federal Reserve.
BEN BERNANKE: As we had expected, however, these factors prove transitory.
KESTENBAUM: So, Scott, let me just paint the scene for you. This is the House Financial Services Committee back in February. Members of Congress looking totally zoned out, some of them clutching cups of coffee, and then this just kind of tumbles out of Ben Bernanke's mouth.
BERNANKE: I think you also have to protect the recovery in the near-term. Under current law, on January 1, 2013, there's going to be a massive fiscal cliff.
KESTENBAUM: So, he says the words fiscal cliff.
SIMON: As soon as I heard it, I was about to yeow.
KESTENBAUM: It's a concrete thing - he said the word cliff. So, some member of the press somewhere was awake. There are headlines saying Bernanke warns of fiscal cliff. Apparently, the term fiscal cliff had been circulating around Capitol Hill, but this really puts it out there. I should say the Congressional Budget Office - it's been writing reports about this - and they call it the fiscal tightening or fiscal restraint. And some people have said, you know, it's really a fiscal slope. But once you say fiscal cliff there's sort of no going back.
SIMON: Yeah. Let me ask about phrases like loopholes and deductions. And put it this way: are one man's loophole another man's lawful deduction, or even a tax incentive?
KESTENBAUM: They're exactly the same thing. I mean, if it benefits you, it's a deduction; if it benefits someone else, it's a loophole. Do you own a home, Scott? I think you do, right?
SIMON: I own an apartment, yes.
KESTENBAUM: OK. So, you get to deduct your interest payments. So, to you...
SIMON: A tax incentive for strengthening our community.
KESTENBAUM: I'm a renter.
SIMON: It's I believe what you meant to say, yes.
KESTENBAUM: So, I'm a renter. To me, that's a loophole. You have a kid, right?
SIMON: Two, as a matter. But believe you me, they're anything but loopholes.
KESTENBAUM: I have one too. That's a great tax credit, I like to call her.
SIMON: All right. A money suck, but a tax credit. OK, yeah.
KESTENBAUM: I mean, if you're a politician looking to eliminate something, it is definitely a loophole.
SIMON: You've got a special affection for this phrase doc-fix - doc hyphen fix - which is...
KESTENBAUM: Let's take this in pieces, Scott. The first doc, the first half, my guess is for doctor. Fix implies you got a problem. This relates to one of the spending cuts that's in the fiscal cliff. And it's a scheduled cut to the amount of money that Medicare pays for doctors. And when you think of the fiscal cliff, we often think of, you know, oh, it's all a result of this gridlock earlier this year. This is a fiscal cliff that happens every single year. The cut to doctor pay, it was supposed to be a way to keep medical costs under control, but every year Congress had said not this year, not this year. Let's not cut the payments for doctors. So, they've put it off for so long now that if they cut does happen this year, it would cut physicians' payments for Medicare by like 30 percent, which would be gigantic. So, the question is: are they going to put it off again or are they going to fix it? And that's the doc-fix.
SIMON: Speaking of doctors, Dr. Kestenbaum, I think I'm suffering from sequestration. And is there a pill to clear it up? What is it exactly?
KESTENBAUM: This always seemed like a really weird phrase to me. So, it is basically a reverse of the bulk of the automatic spending cuts that will happen unless Congress does something. And I looked up sequester in the dictionary, and it doesn't really seem to match up except for, you know, if you think of it as like setting aside money that you don't want to be spent. There is one definition I will share with you. It's the last one listed...
SIMON: This is when we give a timeout to our children, we're sequestering them, right?
KESTENBAUM: Or something mean you do to a horse, a male horse.
SIMON: Oh yes. I get it now, right. Beg your pardon, yes.
KESTENBAUM: I will share with you the last entry in the Oxford English Dictionary definition. Sequester: a jelly-like mass gradually hardens and becomes ossified, surrounds like a sheath the necrotic bone, which is then called the sequester.
SIMON: That's it.
KESTENBAUM: I think that's what they're talking about.
SIMON: Planet Money's David Kestenbaum. Thanks so much.
KESTENBAUM: You're welcome. Transcript provided by NPR, Copyright NPR.