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. Continue reading
The above video by Bill Whittle from 2011 illustrates how deep in the hole we are when it comes to annual deficits. The idea of the Obama administration that the Bush tax cuts must expire for “the rich” earning over 250K (In Chicago that would be a cop and his schoolteacher wife.) has everything to do with politics and almost nothing to do with deficit reduction. Here is why.
If you abolished all of the Bush tax cuts for “the rich” earning over 250K a year, and assuming they did not come up with ways to legally avoid the additional tax by deferring income, the Treasury, further making the rash assumption that increasing taxes does not have any negative impact on the economy, would receive about 70 billion dollars in additional taxes, according to the Congressional Budget Office. This year our deficit is approximately 1.1 trillion dollars. If we eliminate the Bush tax cuts for all taxpayers, the increase in taxes would be about 370 billion, according to the CBO, assuming, rashly, that increasing taxes on the middle class would not have a negative impact on the economy and swell the ranks of people qualifying for “freebies” from Uncle Sucker. Continue reading