What the 'Fiscal Cliff' Means for Typical Pocketbooks

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Some education, child and an adoption-tax credit that were put in place as a part of President Obama's stimulus bill in 2009 might expire if they are not extended.

One common tax feature that won't expire: the mortgage deduction. That one is a permanent feature of the tax code.

How Did We Get Here?

Congress is dealing with a potpourri of tax problems borne from several temporary tax measures, including 2001 and 2003 tax cuts enacted during the Bush administration, 2009 tax cuts enacted during Obama's administration and several short-term tax cut extensions Congress passed between 2010 and now.

On top of that, some lawmakers in Washington want to revisit tax cuts as a way to raise revenue and reduce the deficit. And the impending $800 billion in cuts to domestic and defense spending is a consequence of Congress' failure to reach an agreement on long-term deficit reduction last year.

It's unclear whether deficit reduction will play a big or small role in how Congress addresses the expiring tax cuts between now and Jan. 2.

"A lot of people view the fiscal cliff as an opportunity to have some leverage to do a medium-term budget deal," the Tax Policy Center's Marron said.

A desire to address bigger issues, such as the deficit and entitlements, also means a deal might not be fully reached until next year.

"There are a lot of people who are thinking about strategies to do that," Marron said, "designing a four-month or six-month package to give them more time to put together a more thoughtful fiscal arrangement."

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