More Things That Are Uniquely American

US Flag image from Wikipedia

Apparently I am in a “popular demand” kind of mood these past few weeks. One of my most popular all-time posts was “Five Things That Are Uniquely American”, and I just happen to know a few more things that we Americans just do differently. Things like…

The way we balance our books

Book balance image from Shutterstock

No, no, no. I’m talking about accounting practices. You know, keeping track of money?

Oh. Ooohhhh. I get it now.

Oh. Ooohhhh. I get it now.

Keeping track of finances is a very important job, from individual people trying to keep on top of their bills to large corporations watching their profits like a hawk, all around the world. Of course, the problem is that there is plenty of opportunity for dirty, dirty weasels to lie about how much money they have. On an individual level, this can mean drowning yourself in debt with all those expensive cars you can’t afford. On a corporate level, well, you all still remember Enron, right?

You know, that thing?

You know, that thing?

That’s why we have accountants, who have to be specially trained and certified. It is also why those accountants always follow very rigorous standards and practices when they go over the books. There is a standard set of procedures, a standard way to classify different types of transactions, and standard ways to report the findings.

Around the world, these rules are codified in the appropriately-named International Financial Reporting Standards. The IFRS, as this collection of rules is known, is written by the… wait for it… International Accounting Standards Board. This set of accounting rules has become standard almost everywhere in the world.

Almost.

Patriotic eagle image from America Solidarity

Here in the United States, we have a very different set of rules: the Generally Accepted Accounting Principles or GAAP, set by America’s own Financial Accounting Standards Board. Because of course we do.

As it turns out, though, the GAAP and IFRS aren’t all that different in the basics. Accountants still monitor the same types of accounts and transactions, classify them almost exactly the same way, and prepare the same financial statements. There are a number of key differences, though.

For example, if you have an asset, and it has changed in value over time (for example, you buy a house and it goes up in value), IFRS lets you count that change in value in your records. GAAP does not, on the argument that value is subjective (“I feel like this house is worth $500,000 today. How does that sound?”), while the amount you actually paid for it is something that can be verified. There are any number of differences like this, and they make it hard to read financial statements in one style when you are used to the other.

This makes doing business internationally quite difficult. Imagine being Volkswagen Group of America. As an American company, you have to report your finances to Uncle Sam in GAAP, but as a branch of Volkswagen, you have to send back to Germany another set of paperwork in IFRS. So, most companies that do business internationally just keep two sets of financial records for every transaction. There has been talk of simplifying this system through “converging” IFRS and GAAP and adopting a single, global system; so far, though, it’s just been talk.

Information from one of my MBA classes

The way we name books, video games, movies, etc.

Harry Potter 1 US image from Wikipedia

Everybody loves Harry Potter! (Well, almost everybody.) There is something rather odd about the world-renowned series, though. Have you ever noticed that the first part of the series has two titles?

Harry Potter 1 image from Wikipedia

That is the original cover used in the original British publication. Notice the title: Harry Potter and the Philosopher’s Stone. Now look at the cover at the beginning of this section, that first introduced Harry to American children like myself. Harry Potter and the Sorcerer’s Stone. It turns out the Philosopher’s Stone is actually a mythical element that is really important to medieval alchemy. Of course, American kids don’t generally know anything about medieval alchemy. So when the book was published here in the States, the publisher decided that “Sorcerer’s Stone” would sound less boring to American readers.

It turns out that it’s surprisingly common for books, movies, video games, and so on to have a different name in America than they do in the rest of the world. For example, while most audiences saw a movie about Samuel L. Jackson shooting up the streets of London named “The 51st State”

The 51st State image from Wikipedia

American moviegoers saw a movie about Samuel L. Jackson shooting up the streets of London named “Formula 51”.

Formula 51 image from Wikipedia

While the rest of the world watched The Pirates! In an Adventure with Scientists!, Americans watched The Pirates! Band of Misfits. While the rest of the world played the hit 1991 adventure video game Another World, Americans were playing the hit 1991 adventure video game Out of this World. Another video game with multiple names is Fahrenheit, which was released in the U.S. as Indigo Prophecy. Not even video game consoles are immune: what I grew up calling the Sega Genesis was called the Sega Mega Drive by kids in Japan, Europe, Australia, and New Zealand.

Why these differences? Well, sometimes it’s a trademark dispute. If somebody has already claimed rights to the name you want to use, your options are pretty limited, as Taco Bell learned the hard way when they tried to move into Australia. Other times, marketers just think American audiences would react better to a different name. I guess we’re just special that way.

Information from Wikipedia

The way we spell

Anglo-American Spelling Comparison from Youtube

Americans speak English, and so do a whole bunch of other countries. But what we spell “color”, they will spell “colour”. While our news talks about “national defense”, theirs talks about “national defence”. While I want to go out to the theater, my Canadian counterpart wants to go out to the theatre. You don’t see this sort of thing in other languages. In Spanish, there will be differences in accent, word choice, slang terms, and occasionally pronunciation from country to country, but not in spelling. What is going on?

Thank Noah Webster.

Noah Webster image from Wikipedia

Born in Connecticut in 1758, he spent the Revolutionary War alternating between attending Yale and serving in the Connecticut militia. He was not just an ardent patriot; he was something of a radical. Not merely content with political independence from Great Britain, he wanted the new nation to be culturally independent from Europe as well. No need for the stains of kings and aristocracy cluttering up America’s culture! No, he argued, we should have a culture of the people, right down to our language.

Which brings me to the matter of spelling. Beginning in 1783, Webster wrote a highly popular series of schoolbooks that taught generations of American children how to read and write. Then in 1806, he also wrote – you guessed it – the Webster’s Dictionary. In both cases, he intentionally and purposefully sought to change the way Americans spelled. He felt British spelling was too complex, and “Americanized” the spelling of words like traveler (traveller), wagon (waggon), and mom (mum). Not all of his changes were widely adopted, though – he tried to have tongue spelled “tung”, for example.

Still, we now live in an America where we are surrounded by Webster’s work, right down to the red squiggly lines telling me as I type this that the British words I’ve written above are misspelled. That is an achievement.

Information from Wikipedia.

More Things That Drive Us Crazy Explained by Economics

Frustration image from BigStockPhoto

So, last week’s post was kind of a rant, getting something off my chest that was bugging me. At least you responded with some very intelligent comments and we had a productive discussion; that was very nice. Thank you, Cat Flaggers!

Still, I feel like after that, I wanted to follow up with something more fun and light-hearted. Then I remembered that you asked me for more posts about things that drive us crazy but are easily explained by economics. So, back by popular demand, here are some more things that businesses do that may make us lose our minds, but only makes perfect sense to them.

Why are there so many freaking types of potato chips? It’s now a whole aisle in the grocery store!

Potato Chip Aisle image from Wikimedia Commons

It seems like there is a new flavor of potato chip every month, and sometimes you just have to wonder why your favorite brand felt the need to produce “Honey BBQ and Jalapeño” or “Sardines and Peanut Butter” flavored chips. This also goes for breakfast cereals, candy bars, sodas, and a host of other products. There are just too many choices! How can you possibly figure out what to buy? It’s overwhelming!

Well, it turns out that there is a very simple reason manufacturers flood stores with seemingly unnecessary variety: Economies of Scope. The idea behind economies of scope is simple – it is cheaper for one firm to make multiple, related products than for multiple firms to do so.

This makes intuitive sense. If you have one company that makes, say, action figures, and another that makes dolls, then the two companies have to each buy or make their own plastic, pay for their own melting machines, make their own molds, operate their own assembly equipment in their own factories, ship the goods out in their own trucks, and so on. On the other hand, a company that makes both action figures and dolls will be able to use the same plastic, the same melting machines, the same assembly equipment, the same factories, and the same trucks for both toy lines. This is a huge cost savings!

This means companies have an incentive to produce as diverse of a product line as possible, so long as the products are closely related enough that they can be made with the same equipment. (This isn’t always as obvious as you think.  Yamaha makes both pianos and motorcycles – these products may seem unrelated, but actually they are made with very similar materials and technology.)

Now, let’s get back to our potato chip example. Let’s say Frito-Lay discovers that there is a market for coffee-flavored potato chips. It won’t cost them very much to use their existing potato-chip-making equipment to make coffee-flavored chips. Just produce something that flavors the chips, and you’re done! Meanwhile, some small, start-up brand that wants to specialize in coffee-flavored chips will be at a competitive disadvantage. They will need to pay for all-new equipment to make the chips, which means their chips will cost more. Frito-Lay can use its size to crush would-be competitors before they are able to even get up off the ground.

And remember, you might not buy the coffee-flavored chips, but someone else will. That’s what Frito-Lay is counting on.

Why are CEOs paid so much? The guy gets to make millions per year while his workers lose their jobs or take a pay cut!

It's awesome to be me!

It’s awesome to be me!

It never seems fair, does it? The CEO of a business gets to make hundreds of millions per year to sit in an office, make some phone calls, go golfing, sail around on his yacht, and show off his super-expensive watch and car. Meanwhile, the ordinary people who, you know, actually do the work get a puny paycheck and maybe some benefits if they are lucky. What’s worse, the CEO can raise his own salary while everyone else gets hosed.

It's almost enough to turn you against capitalism altogether.

It’s almost enough to turn you against capitalism altogether.

Except that is a totally inaccurate picture of what is really going on. First of all, CEOs don’t just sit around and show off how rich they are. They are actually really, really important to the whole company.

The CEO is basically the top manager of the whole company, a manager or managers, if you will. They must decide what the company does, how much money they will do it with, and who is responsible for actually doing it. Let me use the potato chip example from earlier. Did you know Frito-Lay is actually owned by Pepsi? It is. Now, who do you think made the decision for Pepsi to buy Frito-Lay, effectively turning a soft drink company into a soft drink and potato chip company? That was Pepsi’s CEO. And who do you think negotiated the merger? Frito-Lay’s CEO. And whose butts would have been on the line if the merger turned out to be a bad idea that lost both companies a lot of money? Those two CEOs.

The CEO decides what the company’s organization is going to look like, and has a huge role in setting the company’s culture. The CEO of Starbuck’s, for example, is responsible for making sure that every Starbuck’s around the world has the same basic “vibe” – the smooth jazz, the free wi-fi, the cozy feel, the funny names for their coffees. The CEO makes sure that when a customer walks into any Starbuck’s anywhere in the world, they know exactly what to expect.

The CEO hires the top executives that run the company on a day-to-day basis, tells them what to do, and holds them accountable when they don’t do it right. The CEO sets the company’s budget and decides what areas the company is going to invest in and what areas the company is going to drop or let whither on the vine.

In almost every case, if Mrs. Average Employee loses her job, the company can easily find somebody new to replace her. Replacing a CEO is far more difficult, because of the extreme responsibility that the CEO takes on. A good CEO can rake in huge profits for the firm, while a bad CEO can completely destroy a company. Just look at J.C. Penney to see the damage a bad CEO can do.

This means that the stockholders who actually own the company really need to make sure that the person they’ve hired does a good job. This is known as the “agency problem” – how do the stockholders know that the person they’ve hired as their new CEO will actually do a good job, and not just take his paycheck and bail? The best way to address this problem is to give the CEO a stake in how the company performs. The main way this is done is by giving something called “stock options” to CEOs, which in a nutshell make the CEO’s pay dependent on how well the company performs. If the company does well, the CEO’s pay goes up. If it does poorly, the CEO’s pay will go down.

That’s not to say the current system is perfect, though. As mentioned above, if the CEO lays off staff and cuts salaries, profits will go up, and the CEO’s pay will go up as a result. Furthermore, this system encourages CEOs to take huge risks that produce short-term profits, and then bail before the decisions they’ve made blow up in the company’s face. By doing so, they get to reap millions of dollars in rewards and leave the company they managed in an utter wreck, which serves nobody. Fortunately, stockholders of large companies are starting to take action. A wave of so-called “shareholder revolts” have been waged to rewrite the rules of how top executives are hired and paid, in the hopes of discouraging and preventing such behavior.

Gosh! It seems like every time they release a new Whatzit, a line of Whatzit fanboys will line up for days to get it. Don’t these people have a life?

Fanboy and ChumChum image from Fanpop

Now we’re going to diverge slightly from economics per se and enter into the realm of marketing. For decades, marketing, advertising, and business strategy were built around the idea that customers only had a transactional relationship with the companies they do business with. They have stuff. You want that stuff. You buy it, they make money, you have the stuff you wanted. Done and done.

But this purely functional model is gradually being replaced by a different model based on a radical idea – people actually form relationships with brands. Relationships that are in many ways similar to the relationships people have with other people.

It sounds crazy, but think about it. Many car enthusiasts identify with a particular car brand – Ford people and GM people, for instance. Luxury car buyers will often overlook or ignore a functionally superior product because “It’s not a Mercedes”. In technology, we have the same thing – are you a Mac or a PC? You’ll find Sony fanboys, “Nintendistas”, and hardcore Xbox fans in any gathering of video game players. Even restaurants aren’t immune – my grandfather was willing to drive all the way to another state to eat at Cracker Barrel.

From a marketer’s standpoint, this is a gold mine. People will go out of their way to get the brand they want, pay higher prices for it, be more willing to forgive mistakes or problems, and readily try out new products.

So, how does a company get these sorts of customers? Well, there are many ways, but a few things really stand out. Are the products good? Is customer service good? Does the company stand behind its products with a good warranty and a willingness to fix any problems with no hassle or drama? Are their premises neat and clean? When they call the company’s hotline, does a person or a machine pick up? Basically, these sorts of seemingly little things get people to lower their guard, and not be so worried about getting ripped off. They begin to trust the company, and feel like the company has their back.

Now that marketers know this, expect to see more companies trying to build and pander to a die-hard, loyal customer base. And yes, that means having to pass a long line of camped-out customers prior to any new product launch. Sorry.

All information from MBA classes I have been taking.

Two-Nation America: A Message for Unity and Sanity

An Editorial

This is something I’ve been pondering for a while. Not only how to say it, but even if I should say it at all. After watching the absolutely ridiculous fiscal cliff fiasco, however, and now bracing for even more political battles next month and the accompanying uncertainty about whether our government will even be able to function, I feel it’s time I said something. Because enough is enough. This is just unacceptable.

I used to think that the problem was that both political parties are giving too much power to their extreme wings. I used to think that we needed cooler heads in Washington, D.C. and that if we just elected moderates who are willing to make deals for the greater good of the country, then things would get better.

However, I have now concluded that the radicalization of the Republican and Democratic parties is just a symptom of an even larger and deeper problem: The United States of America is no longer a nation. It is two.

I’ll explain what I mean by that in a moment. But first, let me explain how I came to this conclusion.

First off, let’s consider last year’s presidential election. I’m sure there were plenty of people who were enthusiastic supporters of President Obama and Governor Romney. But the vibe I got from everyone I know, from political commentators on both sides of the spectrum, and from the campaigns themselves, was that 2012 was an election of fear. Obama voters feared what Romney and the Tea Party would do to this country; Romney voters feared what Obama and his policies and supporters would do to this country with four more years. What the choice came down to was, “What do you fear most?”

The answer to that question, as exit polls showed, demonstrates that we are now two nations. By overwhelming margins, my own generation, the Millenials, and Americans who are considered racial minorities decided that an America of “racist, sexist homophobes who only care about the rich” was the worse fate; by equally overwhelming margins, older, evangelical Christian voters who are considered “white” decided that an “immoral, socialist America of ‘takers'” was the worse fate.

Even America’s corporations are feeling huge pressure to take sides. Now, it’s no secret that corporations have always used their money behind-the-scenes to influence politics through lobbyists and campaign contributions, but these were always over matters that related to their business operations and it was always treated as something kept on the down-low. No business wants to lose huge numbers of customers boycotting their products over some political issue. Yet, last year Kraft Foods and Expedia came out publicly in favor of gay marriage, and Chick-fil-A came out publicly against it. Seriously, what does gay marriage have to do with cookies, chicken sandwiches, or hotel bookings? Is this some kind of trend we are now seeing, that everyone is now pressured to pick a side or else?

Yes. Yes, we now live in a world where compromise is treated as equal to surrender, where the other guy isn’t “some guy I disagree with”, but “the enemy”. Both sides have taken the attitude that, “We could fix all the problems in this country if the other side would just get out of the way and shut up.”

That is why Congress can’t get anything done. But Congress is only reflecting the changes in our society. We have become a two-nation America. So what does that mean?

Well, let’s look at the definition of a nation. According to Google’s dictionary, a nation is “A large aggregate of people united by common descent, history, culture, or language, inhabiting a particular country or territory.” The French theorist Ernest Renan elaborated on the idea of nationhood in his essay “What Is A Nation?”, arguing that nations are created by the people in that nation, a self-applied label that creates a community. He describes nationhood as “a daily referendum” to continue to identify each other as a nation and live together as a community.

Let’s consider each of these elements, so you can see what I’m talking about. Let’s call the two nations “country nation” and “hip-hop nation” to illustrate the differences, so you can visualize what I’m talking about.

Toby Keith image from 123tagged

Jay-Z image from Black Enterprise

 

 

 

 

 

 

 

 

 

 

  1. Common descent – “Country nation” is very much a “white” nation. While it includes people of other ancestries, of course, it’s self-image is fundamentally one where European descent is dominant or the most important. “Hip-hop nation” not only has far more people who identify as non-white, but also is far more accepting of its mixed ancestral heritage.
  2. Common history – Right now, there are two narratives about U.S. history that are competing for acceptance as “the” narrative in our schools and public perception. “Country nation” prefers the traditional narrative that from the arrival of Christopher Columbus in 1492, America’s history has been one of progress enlightening a dark continent and creating the greatest nation on Earth. “Hip-hop nation” prefers the version that goes “What about slavery? What about the genocide of Native Americans? What about the people who were oppressed by industrialization and struggled to survive in absolute poverty until the government began fighting back against the robber barons?”
  3. Common culture – Culture has two parts: material culture (the physical objects associated with culture, like baseballs and apple pies) and values. It is of values where the real differences emerge between these two nations. “Country nation” believes in personal responsibility, the importance of religion and tradition, and the independent, entrepreneurial spirit. They view the government with skepticism, and believe that people are better off when left to their own devices to make their way in the world. “Hip-hip nation” believes in social justice and equal opportunity for all, and believes that much of our current system of politics and economics fails to protect these values. They believe that helping the poor and protecting the environment are social duties.
  4. Common language – You will hear members of “country nation” complaining about the signs in Wal-Mart being in Spanish as well as English far more often than members of “hip-hop nation”.

Lastly, let’s address that “daily referendum” idea. How many times have you heard talk of “real Americans”? Or of something being “un-American”? After President Obama won re-election, the official White House public forums were flooded with petitions for people in this or that state to secede from the Union. Under President Bush, it was always liberals talking about moving to Canada. Think about the logic here. People are saying, “It is easier for me to leave the country altogether than to adapt to current circumstances.”

The worst part is that it’s only going to get worse from here. Why? Demographics. The same groups that voted for President Obama last year are the groups that now have a slim majority, and are growing. The groups that voted for Mitt Romney are the ones that are shrinking with each passing year. This means that the temptation is going to be really strong for hip-hop nation to just ignore and steamroll right over country nation, on the idea that “They don’t matter any more. They’re irrelevant.” Meanwhile, country nation is going to be in a desperate fight to block hip-hop nation wherever they can, because they know it’s “now or never” time – the statistics are against them. This will only lead to more tension, gridlock, and conflict as time goes on.

BUT IT DOESN’T HAVE TO BE THIS WAY!!!!!!!!!!

I don’t know how we became two nations, but we need to come together and become one nation again. As the old saying goes, “United we stand, divided we fall.”

We are reaching a major turning point as a society. Our days as “top dog” on the global food chain are numbered, as China, India, Brazil, and other countries begin to emerge as major powers. Our current way of life is not ecologically sustainable, and as more people around the world try to reach our level of affluence, there will is going to be a crunch on our planet’s resources. And all of this is going on as our economy struggles to recover from the recession and we are trying to wind down the war in Afghanistan responsibly. There are many, many issues we have to address, and eternal brinkmanship over every minor issue is not going to fix it.

Country nation is NOT a bunch of racist, sexist homophobes who only care about the rich. Hip-hop nation is NOT a bunch of immoral, socialist “takers”. And just because you don’t agree with somebody doesn’t mean they are some cackling Saturday morning cartoon supervillain out to “destroy America”. Take a deep breath, and think of him or her as a person, just like you, with many complex motivations and observations that interconnect complexly. Maybe you could try listening to him or her instead of trying to outshout him or her.

To hip-hop nation, I say this: Don’t discount or reject religion, tradition, personal responsibility, or the entrepreneurial spirit. It was these values that helped make America so great.

To country nation, I say this: trying to protect social justice and equal opportunity for all does not mean the same thing as getting rid of capitalism and democracy. Trying to protect the poor and the environment is perfectly compatible with your values.

To both, I say this: We are not enemies. We are the UNITED States of America, in a perpetual quest to form a more perfect union. You have great ideas about how to address our nation’s many issues, and so do other people. Let’s build a spirit of listening and sharing, instead of forcing our way or the highway. I think you will find we all have far more in common than you think.

Not Misérable, but Not Brilliant Either

Les Miserables image from iMDB

The last third or so of Les Misérables is really good. It is compelling, beautiful, emotional, and downright spectacular.

Unfortunately, you have to sit through the first two-thirds of the movie to get there.

Yes, I saw Les Misérables this week. I know that the musical it is based on has a reputation for brilliance, so I had high hopes that this film would blow my mind. Instead, it just felt weird. Don’t get me wrong, the film is absolutely beautiful to look at. Director Tom Hooper and Cinematographer Danny Cohen know how to wow with visuals. The last time they worked together, their film won the Oscar for Best Picture, after all. The problem is, up until the film’s dramatic third act, the audio and the visuals don’t exactly match up.

Here’s what I’m going on about: visually, Les Misérables decided to show a grim, gritty, realistic portrayal of life in post-revolutionary France. It looks like you are watching a historical period piece, like Titanic or The Tudors or Pride and Prejudice. However, what you hear is the classical musical that the film is actually based on. Maybe it’s just the way my brain works, but that felt like a strange disconnect that I simply couldn’t ignore. It was like, “Oh, so they’re singing? Okay. That’s bizarre.” Even though I knew, rationally, that they would be singing pretty much the whole movie through, it just didn’t feel right. Again, the final third was far better, but that was in large part because the characters and set pieces finally started to actually look like a Broadway musical. If they had kept that aesthetic the whole film through, it would probably have been a stronger film.

For example, this image is from the beginning of the film...

For example, this image is from the beginning of the film…

...and this one is from very near the end.

…and this one is from very near the end.

To further add to the sensory confusion is the fact that the filmmakers decided to (A) cast Hollywood actors like Hugh Jackman, Russel Crowe, Anne Hathaway, and Sacha Baron Cohen, and then (B) to have them sing their lines live, instead of lip-syncing to a prior recording. While I appreciate the reasons why they would want to do this, i.e. to make it seem more sincere, the end result is a mixed bag. Russel Crowe and Anne Hathaway both turn out to have surprisingly good singing voices, but watching Hugh Jackman sing was odd. He didn’t disappear into the role the way most actors strive to; instead, I spent the whole movie going, “So now Wolverine is singing about a moral dilemma.”

And don’t get me started about Sacha Baron Cohen, who’s singing voice sounds about as beautiful as a running chainsaw against a blackboard in an echo chamber next to a jet engine. It’s bad, is what I’m saying.

For all of that, though, the film isn’t all that bad. It is visually stunning, it is reasonably faithful to its source material, and it has some really surprising great performances (again, Russel Crowe positively shines as Inspector Javert). But you can’t help but feel like the film could have been better. It’s like they had a bunch of really good ideas but didn’t fit them together right. Thus, the end result is kind of a mess. Not miserable, but not brilliant, either.

Congress Passes Last-Minute Fiscal Cliff Deal

Speaker of the House John Boehner, R-Ohio, on his way to last-minute fiscal cliff talks. Image from Jacquelyn Martin (AP)

Speaker of the House John Boehner, R-Ohio, on his way to last-minute fiscal cliff talks. Image from Jacquelyn Martin (AP)

America did go over the fiscal cliff after all, if only for a few hours. But on the very day that automatic tax increases and spending cuts were set to take effect, the House of Representatives approved a deal crafted and approved by the Senate to avoid the crisis that many predicted would have sent the United States back into an economic recession. President Barack Obama has already announced he plans to sign the deal into law. “I think we all recognize, this law is just one step in the broader effort to strengthen our economy and broaden opportunity for everybody.” the president said, “The fact is, the deficit is still too high, and we’re still investing too little in the things we need for the economy to grow as fast as it should.”

The bill passed the Senate 89-8 and the House 257-167. Among those voting “no” were a majority of House Republicans and a handful of House Democrats. The 85 Republican “yes” votes on the deal allowed the bill to pass. You can find out how your Senator voted here, and how your Representative voted here.

The bill was necessitated by a series of deadlines that all lined up at the same time. On Jan. 1 of this year, tax cuts that dated to 2001 were set to expire, raising taxes on all Americans. Meanwhile, an agreement reached over the debt ceiling wrangle in 2011 attempted to incentivize a large-scale budget compromise by declaring a sweeping set of spending cuts of $109 billion would take effect on Jan. 1 if no better deal were reached. What’s more, the U.S. government reached the new debt ceiling at the end of the year. These three issues all taking place at once meant that no agreement would have meant higher taxes, fewer government services, and as much as a 4-5% drop in GDP.

You can read the agreement here.

The bill’s major provisions include:

  • Americans who earn less than $400,000 per year as individuals and $450,000 per year as a married couple will keep their current tax rates, while those who earn more than that will have their top tax rate increased to 39.6%. This means that 98% of Americans will not see their income tax go up.
  • Americans who earn more than $250,000 per year as individuals and $300,000 per year as a married couple will have limits on what tax deductions and exemptions they can make. This means people not wealthy enough for the new top tax rate but still pretty wealthy will still see higher taxes of a sort, in that they will have fewer ways to reduce their tax bill.
  • Capital gains taxes for those who earn more than $400,000 per year as individuals and $450,000 per year as a married couple will be increased to 20%. This means that people whose wealth is based on investments instead of regular income will also see higher taxes.
  • The top tax rate for estate taxes will be increased to 40%. This means that when someone dies, their estate will be taxed at a higher rate if it is worth more than $5 million ($10 million for families).
  • The Alternative Minimum Tax will now be adjusted for inflation. This will prevent many middle-class and upper-middle-class families who qualify for the AMT will not see an increased tax bill.
  • Payroll taxes on all Americans will go back up to 6.2%, after a year of having a 4.2% payroll tax rate. Payroll taxes go to funding Social Security. This means that all Americans, regardless of income, will have less take-home pay after taxes per paycheck.
  • Various tax credits that were set to expire have been extended. These include the child tax credit, tax credits on college tuition, the earned-income tax credit, and various tax credits for businesses for investments, research, and for supporting renewable energy.
  • Unemployment benefits have been extended for a year.
  • Delays for one year a 27% drop in Medicare payments to doctors. Doctors are forced to accept whatever Medicare offers them when treating senior citizens, often receiving far less than most patients would pay via insurance or out-of-pocket.
  • Extends for one year certain programs that support America’s agricultural industry. The Economist had warned if these programs were not extended, farmers across America would suffer.

The bill, however, does not fix the $109 billion in automatic spending cuts, instead simply delaying their implementation for two months. Neither does the bill address the debt ceiling. The Treasury department is using “extraordinary measures” such as suspending government pension programs that invest in government bonds to buy some time, but at best these measures will only work until February. This means that Congress is not out of the woods yet, and that there will be even more fiscal wrangling in the months to come.

Still, the news that Congress did avoid the fiscal cliff, at least for the time being, has helped out the world’s markets, which have all reported a strong showing. The current Congress has now adjourned, with the new one to take office tomorrow at noon. This means that Congress will not consider a bill to bring relief to areas affected by Hurricane Sandy until the new Congress takes office, a move that representatives from both parties have denounced. Although a spokesman for House Speaker John Boehner assured the public that he committed to getting a Sandy relief bill passed, Rep. Michael Grimm (R-N.Y.) called the move “a personal betrayal”. Although the Senate had passed a $60 billion bill for relief efforts, legislation does not carry over from Congress to Congress, so when the new Congress convenes tomorrow, lawmakers will have to craft a new bill from scratch.

Information from BBC News, CNN, Fox News, MSNBC, and USA Today.