January 1, 2013
The Fiscal Cliff Deal: A Bad Start for 2013
Well this is the wrong way to start off the new year; with a deal that is all taxes and no spending cuts. No thank you.
The agreement primarily targets taxpayers who earn more than $450,000 per year, raising their rates for wages and investment profits. At the same time, the deal would protect more than 100 million households earning less than $250,000 a year from income tax increases scheduled to take effect Jan. 1. ...
Republicans gave in on the spending cuts, known as sequestration, by agreeing to a two-month delay in budget reductions that would be paid for in part with new tax revenue, a condition they had resisted. And the White House made a major concession on the estate tax, agreeing to terms that would permit estates worth as much as $15 million to escape taxation by the end of the decade, Democrats said.
The measure is now at the House, where Speaker John A. Boehner (R-Ohio) pledged to bring it to a vote in the coming days. ...
In addition to dealing with the fiscal crisis, the measure would extend federal farm policies through September, averting an estimated doubling of milk prices. The deal also nixed a set pay raise for members of Congress.
During a midday event at the White House, Obama praised the emerging agreement even though it would raise only about $600 billion over the next decade by White House estimates -- far less than the $1.6 trillion the president had initially sought to extract from the nation's richest.
Some liberals were fuming about the accord, complaining that Obama had been promising to increase taxes on income over $250,000 a year -- a much lower threshold -- since he ran for the White House in 2008.
Under the agreement, the top income tax rate would rise from 35 percent to 39.6 percent for married couples earning more than $450,000 a year and single people earning more than $400,000 a year. Those households also would pay higher rates on investment profits, with rates on dividends and capital gains rising from 15 percent to 20 percent.
Combined with a 3.8 percent surcharge on investment income adopted as part of Obama's health-care initiative -- a tax that also takes effect in January -- the top rate on investment income would rise to 23.8 percent for high-income households.
Nor would taxpayers earning less than $450,000 entirely escape. The deal would restore limits on personal exemptions and itemized deductions that existed during the Clinton administration, with those benefits phasing out for couples earning more than $250,000 a year and single people earning more than $200,000.
By extending lower tax rates for nearly all Americans, the deal would leave tax revenue about $3.7 trillion lower than if the rates had reset at higher levels.
The long-term unemployed could count on receiving emergency benefits for another year, at a cost of about $30 billion.
The last last piece of the puzzle to fall into place was the sequester, which would be delayed until early March under an agreement to raise $12 billion in new tax revenue and $12 billion in fresh savings from the Pentagon and domestic programs.
Another excellent summary of the deal is in the Washington Post here.
Here's what's wrong with this
- No entitlement reform; i.e. long-term cuts
- No spending cuts
- Extension of unemployment benefits, which retards employment.
Of course, there's no acknowledgement from anyone that raising taxes has a negative effect on the economy, but at this point we've come to expect that.
Discussion of spending cuts comes later. Given that we know Obama and his liberals refuse to touch entitlements, and won't agree to any significant cuts in discretionary spending, whatever they agree to will be ephemeral, insignificant, or accounting tricks.
In the end, this deal barely makes a dent in the deficit. $600 billion over 10 years = $60 billion per year. This barely shaves 6% a year off our trillion dollar plus deficits. Even if Obama had gotten all the taxes he wanted, by his own estimate that's only $1.6 trillion over 10 years, or $160 billion per year, still a drop in the bucket when you're running trillion dollar plus deficits.
And if you think that taxes will only go up for those evil rich people, think again. The payroll tax is going from 4.2 percent to 6.2 percent, so every paycheck you get from now on will be 2 percent lower. Swell.
The only good news is that defense sequestration will not take place... yet, anyway. But in the face of everything else that's not that big, and all they did was kick that can down the road a bit farther too.
Sure, liberals aren't happy because it doesn't meet all of their class-warfare goals of punishing the wealthy. What I saw in the last election, and a lot of the analysis that I have read since, has convinced me that to them raising taxes has a lot less to do with raising revenue and a lot more to do with "social justice."
So from what I can tell this deal accomplishes nothing of long-term significance. The bottom line is that unless we change the way the entitlements are structured we are sunk as a nation. No amount of increased taxation will close the budget deficit gap. The GOP should never have agreed to this deal and we should have just gone over the cliff. Yes the public would probably have assigned the bulk of the blame to us but if we're going to go down we may as well go down standing for something.
Yeah, happy new year, everyone.
Posted by Tom at January 1, 2013 7:00 PM
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I agree we should have gone over the cliff.
I agree Social Security and Medicare benefits need to be addressed. SS needs to be treated as the annuity and disability program it is and not a way to reward a voting bloc.
The cost of medical care is the problem. Not health insurance senior citizens can afford.
Unfortunately for the country you and I could actually work things out that are in line with both our ideals and make the programs viable forever. Until rigid ideological lines in Washington, and the fault lies mostly with tea party people, can be seen as utopian ideas and not lines in the sand not to be crossed nothing will change.
Unless Speaker Boehner decides to stick it to Cantor and Ryan and far right crowd and set a moderate agenda.
I doubt he will. I've been a party loyalist and hack like Boehner. Loyalty trumps good of the people as a whole.
Posted by: Joe Hagstrom at January 4, 2013 9:46 PM