The Actual Fiscal Cliff
Well the so-called Fiscal Cliff was avoided through the mechanism that I predicted back in November:
What will happen I suspect is that the fiscal cliff will be avoided through taxes increasing on “the rich”, that will produce revenue that amounts to a rounding error in today’s federal budget, with completely illusory spending cuts. In short, the can will be kicked down the road. Unfortunately for the nation, the end of the road is almost here.
85 Republicans in the House voted for the Fiscal Cliff deal, and 151 voted against it. The Deal passed courtesy of 172 Democrat votes in the House.
The main terms of the agreement are as follows:
1. The Bush tax cuts were made permanent for single filers below 400,000 and married filers below 450,000.
2. The Alternative Minimum Tax has been permanently fixed by adjusting it for inflation.
(I would note that these portions of the deal should be considered as victories for the GOP. Permanently extending the Bush tax cuts for 98% of the population takes away from Democrats the opportunity to use this as a stick against Republicans. The Republicans have fought for a permanent inflation fix to the the Alternative Minimum Tax since it was first proposed in 1969.)
3. Yet another showdown over mandated spending cuts was set up for two months down the road.
4. The tax increases on those earning over 400,000 for single filers and 450,000 for married couple will bring in an estimated 35 billion a year.
5. Capital gains tax will go from 15-20 percent on those earning 400,000 for single filers and 450,000 for married couples.
6. The Estate Tax goes from 35%-40%. (The estate tax only applies to estates over five million dollars.)
7. Factoring in the estate tax increase and the capital gains tax increase estimated additional taxes come to 60 billion a year. For comparison purposes the deficit last year was 1.2 trillion dollars.
The argument about taxes as indicated in regard to number 7 was much ado about nothing. If the Bush tax cuts had been revoked for everyone the additional taxes per year would have been in the range of 370 billion dollars, but there is clearly not the political will to do that. Only radical spending cuts will prevent us from going off the real fiscal cliff, and the election last November ensured those will not happen. So we just had a lot of Sturm und Drang political theater that signified nothing as far as the real debt crisis confronting the nation is concerned.