In the context of large budget deficits, Congress was faced with a variety of policies that were set to reduce spending and increase revenues at the end of 2012. Numerous expiring provisions, across-the-board spending cuts, and other short-term considerations having a major budgetary impact, were scheduled to take effect at the very end of 2012 or in early 2013. This combination of policies, estimated by CBO to reduce the deficit by $502 billion between FY2012 and FY2013, was referred to by some as the "fiscal cliff." Had these policies taken effect, CBO projected that the economy would likely have returned to recession in FY2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ), which prevented many--but not all--of the fiscal cliff policies from taking effect. Even with the enactment of ATRA, however, there are budget issues that remain unresolved and will likely continue to be debated in the 113 th Congress. Specifically, there are uncertainties associated with the debt limit and with appropriations for the final six months of the fiscal year. The continuing resolution currently funding the operations of the federal government expires at the end of March. Therefore, how government operations will be funded after that date needs to be determined. In addition, under current fiscal policy, an increase to the debt limit would be required in early 2013 to meet existing obligations. Finally, because the federal debt remains on an unsustainable path due to long-term imbalances, it is likely that further debate over appropriate levels of spending and revenues will continue. This report provides a brief overview of the major tax and spending policies that comprised the "fiscal cliff." It discusses how the provisions of ATRA did and did not address these policies and provides information on additional budget-related considerations for the 113 th Congress. A variety of revenue and spending provisions had been set to expire around the end of calendar year 2012. These included the "Bush-era tax cuts" and other related tax provisions, extended emergency unemployment benefits, the Social Security payroll tax reduction, the "doc fix," other tax extenders , and the farm bill. Had Congress and the President allowed all of these measures to expire as scheduled and let the spending cuts under the Budget Control Act of 2011 (BCA) take effect (see discussion below), the budget deficits beginning in FY2013 would gradually have fallen as a percentage of gross domestic product (GDP) reaching sustainable levels between FY2014 and FY2022. However, as a result the extension of certain revenue policies and the postponement of certain spending reductions by ATRA, budget deficits may rise to levels over the next several years that will no longer be considered sustainable. (However, these levels are estimated to be lower than the levels seen over the FY2009-FY2012 period.) Prior to the enactment of ATRA, the budget deficit was estimated to fall by $502 billion between FY2012 and FY2013. As Congress changed the trajectory of these policies by increasing spending and decreasing revenue, these policies have increased the deficit relative to the baseline. Budget changes are measured by the Congressional Budget Office (CBO) relative to "current law" baseline, or the law in place at the time the legislation is being considered. Therefore, as shown in Table 1 , the spending increases and revenue decreases in ATRA are estimated to increase the budget deficit by $330 billion in FY2013 and nearly $4 trillion over the FY2013-FY2022 period relative to current law. Compared to a "current policy" baseline, however, ATRA modestly reduced the deficit because it raised taxes relative to those policies that were in place at the end of 2012. A current policy baseline measures changes relative to policies in place at the time legislation is being considered. For official scorekeeping purposes, policy changes are measured relative to current law. ATRA addressed several revenue provisions that had been set to expire at the end of 2012. These included the "Bush-era tax cuts," provisions related to the estate tax, certain tax provisions enacted or expanded as part of the American Recovery and Reinvestment Act of 2009, the Alternative Minimum Tax (AMT), and a number of temporary tax provisions (also known as "tax extenders"). In addition to these revenue provisions, ATRA also addressed several spending policies that were scheduled to reduce spending beginning in FY2013. These included temporary emergency unemployment benefits, payments to Medicare physicians under the Sustainable Growth Rate (SGR) system, the automatic spending cuts enacted as part of the Budget Control Act of 2011, and the 2008 farm bill. ATRA included a number of tax provisions that directly addressed two components of the "fiscal cliff"--the Bush-era tax cuts and other expiring tax provisions. On a permanent basis, ATRA addressed the Bush-era tax cuts, estate and gift tax, and AMT resulting in a $207 billion reduction in tax revenue in FY2013. ATRA also extended a number of expiring tax provisions resulting in a $74 billion reduction in tax revenue in FY2013. The Bush-era tax cuts included provisions--initially enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16 ) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA; P.L. 108-27 ) --which reduced income tax liabilities from 2002 to 2010. These tax cuts were extended for 2011 and 2012 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ).The Bush-era tax cuts lowered income taxes in a variety of ways, including by reducing marginal tax rates on ordinary income; reducing tax rates on long-term capital gains and dividends; reduced and ultimately repealed limitations for personal exemptions (PEP) and itemized deductions (Pease); and expanded certain tax credits, including the Earned Income Tax Credit (EITC), child tax credit, adoption tax credit, and dependent care tax credit. The Bush-era tax cuts also contained provisions to reduce the marriage tax penalty, as well as modifying and expanding various education-related tax incentives. ATRA made a variety of changes to these tax provisions. The law permanently extended and in certain cases modified tax provisions originally included in EGTRRA and JGTRRA. Specifically, ATRA permanently extended the reduced tax rates on both ordinary income and capital gains and dividends for taxpayers with taxable income below $400,000 ($450,000 for married taxpayers filing jointly). For taxpayers with taxable income above these thresholds, the marginal tax rate on ordinary income rose from 35% to 39.6% on the portion of their income above these thresholds, and the top tax rate on long term capital gains and dividends rose from 15% to 20%. ATRA also reinstated PEP and Pease for taxpayers with adjusted gross income (AGI) above $250,000 ($300,000 for married couples filing jointly), allowing these limitations on personal exemptions and overall itemized deductions to expire for those with AGI below these thresholds. ATRA also permanently extended the tax changes to a variety of tax credits, the marriage penalty and education-related tax incentives. The Joint Committee on Taxation estimates that the permanent extension of the modified 2001 and 2003 income tax cuts will reduce revenues by $65 billion in FY2013 and $1.53 trillion over the FY2013 to FY2022 period. For additional background information on these tax provisions, see CRS Report R42020, The 2001 and 2003 Bush Tax Cuts and Deficit Reduction , by [author name scrubbed] and CRS Report R42485, An Overview of Tax Provisions Expiring in 2012 , by [author name scrubbed]. EGTRRA enacted provisions to phase out the estate tax over a 10-year period. In 2010, there was no federal estate tax. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 temporarily reinstated, through 2012, the estate tax. As reinstated, the top rate for the estate tax was lower than it had been in 2009 (35%, as opposed to 45%). The exemption amount, as reinstated, was also higher than it had been in 2009 ($5.0 million, as opposed to $3.5 million). Absent legislative action, after 2012 the estate tax would have returned to pre-EGGTRA rules, with a top rate of 55% and a $1 million exemption level per decedent. ATRA permanently extended the estate tax rules established by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, except for the top tax rate which was increased from 35% to 40%. Hence, under ATRA, $5 million of a decedent's estate would be exempt from the estate tax (this threshold is indexed for inflation occurring after 2011 and was $5.12 million per decedent in 2012), and the top rate on estates over this threshold would be 40%. The Joint Committee on Taxation estimates that the permanent extension of the estate tax as included in ATRA will reduce revenues by $334 million in FY2013 and $369 billion over the FY2013 to FY2022 period. For additional information on the estate tax, see CRS Report R41203, Estate Tax Options , by [author name scrubbed]; CRS Report 95-416, Federal Estate, Gift, and Generation-Skipping Taxes: A Description of Current Law , by [author name scrubbed]; and CRS Report 95-444, A History of Federal Estate, Gift, and Generation-Skipping Taxes , by [author name scrubbed]. The Alternative Minimum Tax (AMT) was designed to ensure that higher-income taxpayers who owed little or no taxes under the regular income tax because they could claim tax preferences would still pay some tax. When calculating the AMT, taxpayers first add back various "tax preference items" (like certain deductions) to their taxable income, to determine the amount of income subject to the AMT (the "AMT tax base"). Second, taxpayers subtract a basic exemption amount from their AMT tax base. Third, a two-tiered rate structure of 26% and 28% is assessed against the AMT tax base to determine tax liability. Finally, if a taxpayer's AMT is greater than their regular tax liability, the taxpayer pays the difference in addition to their regular tax liability. Crucially, prior to the enactment of H.R. 8 , key parts of the AMT--including the exemption amount--were not indexed for inflation. This meant that additional taxpayers--an estimated 27 million in 2012--would be subject to the AMT due to the rise of their nominal income levels over time. Over the past decade, Congress had regularly enacted temporary increases of the AMT exemption amount to adjust for inflation and allowed nonrefundable personal tax credits to reduce AMT tax liability (these policies are often known as the AMT "patch"). ATRA permanently adjusts the AMT exemption amount for inflation, ending the need for temporary "patches," and permanently allows nonrefundable personal tax credits to offset AMT liability. The Joint Committee on Taxation estimates that the permanent indexing of the AMT for inflation and the permanent allowance of certain personal nonrefundable tax credits against the AMT will reduce revenues by $139 billion in FY2013 and $1.816 trillion over the FY2013 to FY2022. For more information, see CRS Report RL30149, The Alternative Minimum Tax for Individuals , by [author name scrubbed]. The expiring provisions temporarily extended by ATRA can be differentiated based upon the length of their extension--with provisions originally enacted as part of the American Recovery and Reinvestment Act of 2009 being extended through the end of 2017 and other provisions (commonly referred to as tax extenders) that were extended through the end of 2013. The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ) made modifications to two provisions of the Bush-era tax cuts and enacted two new tax provisions. Specifically, ARRA's modifications expanded the refundability of the child tax credit and further reduced the marriage penalty of the EITC. In addition, ARRA increased the EITC for families with three or more children and enacted a new higher education tax credit--the American Opportunity Tax Credit (AOTC). Like the Bush-era tax cuts, the four tax law changes enacted by ARRA were also extended through the end of 2012 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ). ATRA temporarily extended these four ARRA tax provisions for five years, through the end of 2017. The Joint Committee on Taxation estimates that the temporary extension of these four ARRA tax provisions will reduce revenues by $3 billion in FY2013 and $134 billion over the FY2013 to FY2022 period A number of temporary tax provisions expired at the end of 2011, and more expired at the end of 2012. In August 2012, the Senate Finance Committee voted to approve a package that would have extended more than 50 expired and expiring tax provisions through 2013. Among the provisions that would be extended under the Family and Business Tax Cut Certainty Act of 2012 ( S. 3521 ; 112 th Congress) were those that targeted research and development (R&D), increased expensing allowances designed to encourage investment, were related to the tax treatment of foreign-source income such as the active financing exception under subpart F, and benefited a number of energy sources, among others. Most of these temporary provisions had previously been extended as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ). Ultimately, many of these temporary expiring provisions included in S. 3521 were extended for 2012 and 2013 by ATRA. The Joint Committee on Taxation (JCT) estimates that the temporary extension of tax extenders included in ATRA will reduce revenues by $74 billion in FY2013 and $76 billion over the FY2013 to FY2022 period. Of this total 10-year cost, $12 billion of these revenue losses are attributable to the temporary extension of individual income tax extenders, $46 billion of these revenue losses are attributable to the temporary extension of business tax extenders and $18 billion of these revenues losses are attributable to energy tax extenders. For additional background on expired or expiring provisions, see CRS Report R42105, Tax Provisions Expiring in 2011 and "Tax Extenders" , by [author name scrubbed] and CRS Report R42485, An Overview of Tax Provisions Expiring in 2012 , by [author name scrubbed]. ATRA included a number of spending provisions, including postponing or extending several major programs that had been set to face significant changes. These included postponing a portion of the automatic spending reductions set to take effect as part of the Budget Control Act of 2011, extending certain unemployment benefits, preventing reductions in Medicare physician payment rates, and providing for a one-year extension of the 2008 farm bill. CBO estimated that ATRA's spending provisions, with any applicable offsets, would increase the deficit by $35 billion in FY2013. Spending cuts had been scheduled to take effect beginning on January 2, 2013 as a result of the Budget Control Act of 2011 (BCA; P.L. 112-25 ). The BCA contained a variety of measures intended to reduce the deficit by at least $2.1 trillion over the FY2012-FY2021 period, along with a mechanism to increase the debt limit. The deficit reduction provisions included $917 billion in savings from statutory caps on discretionary spending and the establishment of a Joint Select Committee on Deficit Reduction (Joint Committee) to identify further budgetary savings of at least $1.2 trillion over 10 years. On November 21, 2011, the co-chairs of the Joint Committee announced that they were unable to reach an agreement before the committee's deadline. As a result, a $1.2 trillion automatic spending reduction process had been triggered to begin on January 2, 2013. For FY2013, automatic across-the-board spending reductions (referred to as a sequester) amounting to $109 billion had been scheduled to take effect on January 2, 2013, with $54.7 billion being cut from defense spending and $54.7 billion cut from non-defense spending. Spending reductions of a similar amount are also scheduled to occur in each year between FY2014 and FY2021. With the passage of ATRA, the FY2013 spending reductions were reduced by $24 billion, to roughly $85 billion equally divided between defense and non-defense, and postponed for two months. The modified spending reductions are now scheduled to take effect on March 1, 2013, unless changes are made as a result of the enactment of subsequent legislation. Several other minor modifications were also made to the process by which these spending cuts would be calculated. In order to offset the cost of the changes related to the postponement and reduction of the BCA's automatic spending cuts, ATRA contains spending reductions and revenue increases. On the spending side, the BCA's FY2013 and FY2014 discretionary spending caps were reduced, which offset roughly half of the cost. In addition, ATRA also contained a provision which raises revenue by permitting certain retirement accounts to be transferred to designated Roth accounts without distribution. Roth contributions are subject to taxation when they are made, rather than when the distributions are received, as with other types of tax-preferred retirement accounts. As a result, this change increases revenue to the government within the 10-year budget window, and decreases revenue outside the 10-year window. For more information on how the Budget Control Act's automatic spending reductions affect the budget deficit, see CRS Report R42506, The Budget Control Act of 2011: The Effects on Spending and the Budget Deficit When the Automatic Spending Cuts Are Implemented , by [author name scrubbed] and [author name scrubbed]. For more information on individual retirement accounts, see CRS Report RL30255, Individual Retirement Accounts (IRAs): Issues and Proposed Expansion , by [author name scrubbed] and [author name scrubbed] and CRS Report RL34397, Traditional and Roth Individual Retirement Accounts (IRAs): A Primer , by [author name scrubbed]. The Unemployment Compensation (UC) program is a joint federal-state effort with basic income support for unemployed workers provided through the state-funded UC benefit. Once UC benefits are exhausted, the temporarily authorized Emergency Unemployment Compensation (EUC08) and the permanently authorized Extended Benefit (EB) programs may provide additional unemployment benefits, depending on worker eligibility, state law, and state economic conditions. States provide funds for the regular UC benefit (approximately the first 26 weeks of benefits) and the state share of the EB payments. The federal government provides funds for UC program administration, the federal share of EB payments, and the EUC08 program. Under permanent law (P.L. 91-373), the EB program is funded 50% by the federal government and 50% by the states. P.L. 111-5 , as amended most recently by H.R. 8 , temporarily provides for 100% federal funding of the EB program until the end of 2013 when the federal share reverts back to 50%. The 100% federally funded EUC08 program was first authorized by P.L. 110-252 . The EUC08 program's structure and authorization have been amended numerous times, most recently by H.R. 8 . Until the signing of H.R. 8 on January 2, 2013, the authorization for EUC08 technically had lapsed on December 28, 2012. The entire EUC08 benefit structure is scheduled to expire at the end of 2013. As currently authorized, the EUC08 program provides up to four tiers of additional weeks of unemployment benefits to certain workers who have exhausted their rights to UC benefits in states with high unemployment. CBO has estimated that these provisions will increase the deficit by $30 billion in calendar year 2013 ($22 billion in FY2013 and the remaining $8 billion in FY2014) for the temporary provisions in EUC08 and EB. For more information on unemployment insurance benefits, including benefits from the EUC08 and EB programs, see CRS Report RL33362, Unemployment Insurance: Programs and Benefits , by [author name scrubbed] and [author name scrubbed]. Reductions in payment rates to physicians under the Medicare program, as required under the Sustainable Growth Rate (SGR) system, were averted through December 31, 2012 as part of the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ). The SGR system, the statutory method for determining the annual updates to the Medicare physician fee schedule, was established as part of the Balanced Budget Act of 1997 ( P.L. 105-33 ) in an attempt to maintain Medicare physician spending levels close to a "sustainable" target level that reflected growth in GDP per capita, efficiency in delivering health care, and other measures. In the first few years of the SGR system, the actual expenditures did not exceed the targets and the updates to the physician fee schedule were close to the Medicare economic index (MEI, a price index of inputs required to produce physician services). For the next two years, in 2000 and 2001, the actual physician fee schedule update was more than twice the MEI for those years. Beginning in 2002, the actual expenditure exceeded allowed targets, and the discrepancy has grown with each year. With the exception of 2002, when a 4.8% decrease was applied, Congress has enacted a series of laws to override the reductions. However, legislative overrides since 2002 have only provided temporary reprieve from projected reductions in payments under the SGR calculation, requiring even steeper reductions in payment rates in the future. Section 601 of ATRA keeps Medicare physician payments at the current level through December 31, 2013, overriding the statutory SGR changes that would have reduced physician fees by 27% in calendar year 2013. CBO estimates that this provision will increase the budget deficit by $11 billion in FY2013 and by $25 billion over the FY2013 to FY2022 period. For additional background information and history on the SGR system, see CRS Report R40907, Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System , by [author name scrubbed] and [author name scrubbed]. ATRA also includes many additional health care provisions that extend expiring provisions or modify existing payments to providers under the Medicare program, among other purposes. Some of the provisions add to direct spending, including all of the extensions for increased Medicare provider payment (such as the floor on the physician work geographic adjustment and the ambulance add-on payments) as well as the provisions extending beneficiary assistance programs (such as the qualifying individual (QI) program and the Transitional Medical Assistance (TMA) program). Other provisions would result in savings to the federal budget, including the elimination of funds from the Medicare Improvement Fund and the rescission of unobligated amounts in the consumer operated and oriented plan program contingency fund, or reductions to provider payments through modifications in the treatment of multiple service payment policies and documentation and coding adjustments for Medicare inpatient services. On net, CBO estimates that all other health provisions in Title VI (excluding the doc fix) would result in an increase in the budget deficit of $2 billion in FY2013 and a decrease in the deficit of $23 billion over the FY2013 to FY2022 period. ATRA extends the 2008 farm bill (the Food, Conservation, and Energy Act of 2008, P.L. 110-246 ) for one additional year until September 30, 2013, or, in the case of the farm commodity programs that are on a different calendar, through crop year 2013. Parts of the 2008 farm bill had expired on September 30, 2012. However, to extend the Milk Income Loss Contract (MILC) program at desired rates, an additional $110 million was needed. The offset for this authority was a reduction of $110 million from a nutrition education program. A different subset of 2008 farm bill programs did not have a continuing baseline, and thus would have required new funding to be continued. These programs did not receive any additional funding under ATRA, although many would have been funded in the five-year farm bills and extension proposals that were developed in 2012. This group includes certain conservation programs, agricultural disaster assistance programs, specialty crop research, organic research and certification, beginning and socially disadvantaged farmer programs, rural development, bioenergy, and farmers market promotion programs. There is no net cost to the extension provided in ATRA because funding to continue most of the major farm bill programs, such as for the farm commodity, conservation, trade, and nutrition programs, was already in the baseline. The 113 th Congress is expected to write a new farm bill in 2013, and the one-year extension preserves the budget baseline to write a new bill. For more information about the farm bill extension, see CRS Report R42442, Expiration and Extension of the 2008 Farm Bill , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. ATRA did not address two policies considered to be part of the "fiscal cliff"--the expiration at the end of 2012 of the two-percentage-point reduction in the Social Security payroll tax and the ACA taxes on higher-income tax filers, which are scheduled to take effect in 2013. In an effort to stimulate the economy, Congress, in December 2010, temporarily reduced the employee and self-employed shares of the Social Security payroll tax by two percentage points (4.2% for employees and 10.4% for the self-employed). Social Security trust funds were "made whole" by a transfer of general revenue, so that Social Security did not lose revenues as a result of the payroll tax rate reduction. The temporary reduction was scheduled to expire at the end of 2011, but the reduction was extended for two months as part of the Temporary Payroll Tax Cut Continuation Act of 2011 ( P.L. 112-78 ). Congress later extended the payroll tax rate reduction through the remainder of 2012 as part of the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ). ATRA did not extend the payroll tax reduction past its current expiration date of December 31, 2012 and it has therefore reverted back to the original rates (6.2% for employees and 12.4% for the self-employed). Thus, the employee share of Social security payroll taxes is again 6.2% on the first $113,700 of wages in 2013. For more information on the temporary payroll tax rate reduction, see CRS Report R42103, Extending the Temporary Payroll Tax Reduction: A Brief Description and Economic Analysis , by [author name scrubbed] and [author name scrubbed] and CRS Report R41648, Social Security: Temporary Payroll Tax Reduction , by [author name scrubbed]. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 as amended) is expected to, among other things, increase access to health insurance coverage (with most coverage provisions effective in 2014). In addition to financial penalties imposed on most individuals who do not purchase health insurance coverage and certain employers who do not provide affordable and/or adequate coverage, the law includes a number of explicit revenue provisions to pay for expanded coverage. One-third of those revenues will be derived from taxes and fees on health insurers, plan administrators, and employers, with initial effective dates varying from 2011 up to 2018. However, nearly half of those revenues are to be derived from taxes on high-income taxpayers that will be effective in 2013. These include a Medicare payroll tax and a tax on unearned income. According to CBO, these two taxes are projected to raise $18 billion in revenue in 2013. Under current law, employers and employees each pay a payroll tax of 1.45% to finance Medicare Hospital Insurance (Part A). ACA includes additional hospital insurance taxes on high-income taxpayers. Specifically, ACA imposes an additional payroll tax of 0.9% on high-income workers with wages over $200,000 for single filers and $250,000 for joint filers effective for taxable years after December 31, 2012. The additional payroll tax only applies to wages above these thresholds. Thus, the hospital insurance portion of the payroll tax will increase from 1.45% to 2.35% for wage income over the threshold amounts. These revenues will be credited to the Medicare Hospital Insurance Trust Fund (Part A). ACA as amended also imposes an additional tax on net investment income. Households with modified adjusted gross income (MAGI) under specified thresholds will not be subject to the investment income tax. Specifically, effective for taxable years after December 31, 2012, the law will impose a tax equal to 3.8% of the lesser of (1) net investment income for such taxable year, or (2) the excess of MAGI over $250,000 for joint filers and $200,000 for single filers. ATRA did not alter the ACA taxes imposed on higher-income tax filers. For more information about these taxes, see Archived CRS Report R41128, Health-Related Revenue Provisions in the Patient Protection and Affordable Care Act (ACA) , by [author name scrubbed] and CRS Report R41413, The 3.8% Medicare Contribution Tax on Unearned Income, Including Real Estate Transactions , by [author name scrubbed]. As noted above, Congress may choose to reconsider several provisions temporarily extended in ATRA before they expire. In March, the automatic spending reductions from the Budget Control Act of 2011 are scheduled to take effect. At the end of 2013, unemployment provisions, the farm bill, the "doc fix," and several tax extenders are scheduled to expire. In addition, this section discusses two other issues that Congress is likely to consider in early 2013, appropriations and the debt limit. On September 28, 2012, President Obama signed a continuing resolution (CR) which provided appropriations for the first 6 months of FY2013 ( P.L. 112-175 ). After March 27, 2013 the day that currently enacted funding expires, a funding gap will occur unless further appropriations are provided, either through the enactment of the 12 appropriations bills, another CR, or some combination of the two. If there is a funding gap due to the absence of an agreement to provide additional appropriations, government activities will cease, except for emergency operations. In the past, government shutdowns have reportedly necessitated furloughs of several hundred thousand federal employees, required cessation or reduction of many government activities, and affected numerous sectors of the economy. Government borrowing is constrained by a statutory debt limit that Congress periodically alters. Current fiscal policy would require an increase to the debt limit in early 2013 to meet existing obligations. Treasury Secretary Geithner indicated in a December 26, 2012 letter to Congress that the current debt limit would be reached on December 31, 2012. After that time, certain extraordinary measures can be taken which would be able to extend headroom under the debt limit by for roughly two additional months. Negotiations on this issue in 2011 led to the passage of the BCA, which included a debt limit increase and deficit reduction provisions shortly before the limit was reached. Some in Congress have expressed a desire to see a similar agreement accompanying the next debt limit increase. The debt subject to limit will generally continue to rise as long as the budget remains in deficit or trust funds remain in surplus. Further, seasonal fluctuations could still require Treasury to sell debt even if the annual level of federal debt subject to limit does not increase. The current debt limit stands at $16.394 trillion. For more information on the debt limit and potential consequences of not increasing it, see CRS Report R41633, Reaching the Debt Limit: Background and Potential Effects on Government Operations , coordinated by [author name scrubbed] and CRS Report RL31967, The Debt Limit: History and Recent Increases , by [author name scrubbed] and [author name scrubbed]. Many budget analysts are concerned about future levels of federal debt and acknowledge that the current spending and revenue policies resulting in large deficits cannot continue indefinitely. However, making significant changes to reduce the deficit at this time may be harmful to the ongoing economic recovery. Some economists believe that the uncertainty surrounding the "fiscal cliff" was holding back the recovery as individuals, businesses, and state and local governments did not know what they would be facing in January 2013, leading some to reduce or delay purchases of goods and services. Although ATRA eliminated uncertainty surrounding some major tax and spending policies, it did not restore fiscal sustainability. The effects on the economy of certain policies enacted to combat the economic downturn, such as the spending and revenue provisions of the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ), are waning under current law. CBO recently projected that the economy will not return to full employment until FY2018. Though ATRA is likely to increase economic growth in the short-run relative to what growth would have been if the policies of the "fiscal cliff" had taken effect, ongoing large budget deficits could dampen economic growth over the long-run. Many policy issues affecting the federal budget over the next decade and beyond remain unresolved. Increases in mandatory spending due to rising healthcare costs and the aging of the population are expected to begin taking effect towards the end of the decade. Keeping future federal outlays at 20% of GDP, or approximately at its historical average, and leaving fiscal policies unchanged, according to CBO projections, would require drastic reductions in all spending other than that for Medicare, Social Security, and Medicaid, reining in the costs of these programs, or some combination of the two. Putting the budget on a sustainable path would require less spending, increases in revenue collections, faster-than-average economic growth, or a combination of these things. Increasing levels of debt require interest payments that can strain budgets if debt levels and interest rates are high. High debt levels could limit the government's flexibility in meeting its obligations or in responding to emerging needs of its citizens.

Summary:
The federal budget deficit has exceeded $1 trillion in each of the last four fiscal years (FY2009-FY2012). Concern over these large deficits, as well as the long-term trajectory of the federal budget, resulted in significant debate during the 112th Congress over how to achieve meaningful deficit reduction and how to implement a plan to stabilize the federal debt. Numerous expiring provisions, across-the-board spending cuts, and other short-term considerations having a major budgetary impact, were scheduled to take effect at the very end of 2012 or in early 2013. This combination of policies, estimated by CBO to reduce the deficit by $502 billion between FY2012 and FY2013, was referred to by some as the "fiscal cliff." Had these policies taken effect, CBO projected that the economy would likely have returned to recession in FY2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240), which addressed many of these tax and spending policies. As a result of the changes in ATRA which are set to increase spending and decrease revenue, the deficit is projected to rise relative to the current law baseline. The provisions of ATRA were estimated by CBO to increase the budget deficit by $330 billion in FY2013 and nearly $4 trillion over the FY2013-FY2022 period. ATRA addressed several revenue provisions that had been set to expire at the end of 2012. These included the "Bush-era tax cuts," provisions related to the estate tax, certain tax provisions enacted or expanded as part of the American Recovery and Reinvestment Act of 2009, the Alternative Minimum Tax (AMT), and a number of temporary tax provisions (also known as "tax extenders"). ATRA permanently extended a modified version of the "Bush-era tax cuts" and the estate tax, as well as a permanent AMT patch. The law also temporarily extended the ARRA tax provisions and a variety of "tax extenders." ATRA did not extend the two-percentage-point reduction in the Social Security payroll tax, which expired at the end of 2012, or delay the Affordable Care Act (ACA) taxes on higher-income tax filers, which are scheduled to take effect in 2013. Combined, these provisions were estimated by CBO and JCT to increase the deficit by $280 billion in FY2013 and $3.93 trillion over the FY2013-FY2022 period. In addition to these revenue provisions, ATRA also addressed several spending policies that were scheduled to reduce spending beginning in FY2013. It extended the federal share of extended benefit payments for unemployment and postponed the expiration of the authorization for temporary emergency unemployment benefits through 2013. It delayed a reduction in payments to Medicare physicians under the Sustainable Growth Rate (SGR) system through 2013. It eliminated the first two months of the automatic spending cuts enacted as part of the Budget Control Act of 2011 (BCA; P.L. 112-25), postponing their onset from January 2 to March 1. It extended the 2008 farm bill through 2013. These provisions, some of which were offset, were estimated by CBO to increase the deficit by $48 billion in FY2013 and $34 billion over the FY2013-FY2022 period. Despite the enactment of ATRA, many policy issues affecting the federal budget remain unresolved. Specifically, in early 2013, Congress will likely consider a debt limit increase, additional actions related to the postponed BCA automatic spending reductions, and appropriations for the final six months of FY2013. Finally, long-term fiscal sustainability issues remain unresolved.