Everybody is hysterical over the Obama endorsed senate fiscal cliff bill that passed the House on 1/1/13 in a 267-167 vote. The Democrats are unhappy because this bill will only raise $700 billion in new tax revenues instead of the $1.6 trillion that they sought. The Republicans are unhappy for a mixed bag of reasons because more House Republicans voted NO than voted YES. 85 House Republicans voted Yes but 151 voted NO. Conversely, 172 House Dems voted YES and only 16 voted NO.
As far as the federal debt ceiling is concerned, the outcomes of these media hyped up debates are always the same - there is no debt ceiling and it's borrow and print to infinity. There is no debate on borrowing and spending.
To understand what passed, you first have to understand what was at stake here: the Bush Tax cuts (scheduled to expire on 12/31/12)and and Obama's stimulus that reduced the payroll withholding tax by 2%.
On the payroll tax, the workers really got screwed because they will immediate incur a 2% tax hike. The payroll tax hike has been dubbed the $40 a week tax on wage earners because that is, on average, the amount their paychecks will be immediately reduced.
Payroll tax hike to take $1,000 bite out of average worker’s annual pay
Before the 2010 deal, payroll taxes were 6.2 percent, deducted from the first $106,800 of workers’ paychecks. Inflation raised that ceiling to $110,100 in 2012.Obama and the Democrats really socked it to the poor and working class that they claim to love and represent, and with more than a little help from their Republican partners in crime. Congress did absolutely NOTHING to keep the lower payroll tax and neither the Republicans or Democrats even fought to prevent this draconian taxes that definitely will be taking a big chunk out of the paychecks of the poor and middle class. The working poor and middle class will suffer the brunt of this 2% payroll tax hike because the earnings ceiling is now $110,000. Rich folks or trust fund babies don't pay the payroll tax because it's a tax that only applies to wage earners and not unearned income. Unearned income isn't subject to FICA or Medicare payroll taxes. The year that John Kerry ran for president, his mega wealthy heiress ketchup queen wife paid an effective federal tax rate of about 12% on unearned income of over $5 million (mostly dividends and interest income).
But for the last two years, the payroll tax rate has been 4.2 percent.
Last December, the White House and Democrats staged a campaign to preserve the expiring payroll tax cut, asking individuals to detail what the average $40-per-paycheck tax hike would mean to them. Over the course of a year, that adds up to about $1,000 lost to taxes.
Astoundingly, the Washington Post admitted that half of the new taxes will come from the payroll tax increase, in addition to being one of the largest tax hikes in US history.
Tuesday’s tax increase is the biggest in decades
....a little over half of the tax hike next year will come from the expiration of the payroll tax cut, which affects every American worker. That tax cut has been in place for two years, replacing a similar tax cut that was in effect in 2008 and 2009.What does Congress do with all those Social Security taxes it collects? It doesn't save the money to pay Social Security benefits because Congress has actually plundered the Social Security Trust Fund over a period of decades to the tune of over $2.5 trillion bucks to fund wars, pork and other slop. That's a side issue covered here: Yes My Fellow Americans, Congress Really Did Steal Your Social Security.
Because of the expiration of the payroll tax cut, all workers will pay 2 percent more in tax on their salary next year. A worker earning $50,000, for instance, would pay $1,000 more in taxes in 2013 than in 2011 or 2012.
Payroll taxes haven’t gone up since the late 1980s.....
Moving on to the Bush tax cuts, they were really two tax cutting pieces of legislation.
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA)
The Bush tax cuts were scheduled to sunset in 2010 but Obama extended them to 12/31/12 as part of a stimulus that also included the payroll tax cuts.
Effectively, the Bush tax cuts lowered the top tax rate from 39.6% to 35%. When the fight commenced over the tax rates as well as the income threshold for the restoration of the high tax rates, President Obama and Speaker Boehner were at loggerheads in the negotiations because Obama wanted taxes raised on all income over $250,000 while Boehner was willing to let the tax cuts expire on all income under $1,000,000. While the Obama/Boehner negotiations fell apart, they were close - letting tax cuts expire for everyone under an income threshold of $400-500 a year. Then Harry Reid and Mitch McConnell tried to cut a deal and failed. Finally, Vice President Joe Biden and Mitch McConnell struck a deal that was passed in the Senate 89-8. The Biden/McConnell deal is the deal that passed in the House and set the income threshold at $450,000.
How crappy is the Biden/McConnell deal? It doesn't include any spending cuts and Bloomberg is reporting that 77% of American households will pay higher taxes.
Senate-Passed Deal Means Higher Tax on 77% of Households
The budget deal passed by the U.S. Senate today would raise taxes on 77.1 percent of U.S. households, mostly because of the expiration of a payroll tax cut, according to preliminary estimates from the nonpartisan Tax Policy Center in Washington.A tax increase for 77% of American households is what Congress call the "American Taxpayer Relief Act of 2012".
More than 80 percent of households with incomes between $50,000 and $200,000 would pay higher taxes. Among the households facing higher taxes, the average increase would be $1,635, the policy center said. A 2 percent payroll tax cut, enacted during the economic slowdown, is being allowed to expire as of yesterday.
Can you stop laughing? But it gets worse. A trillion dollar Obamacare tax also hit the American people January 1, 2013.
$1 Trillion Obamacare Tax Hike Hitting on Jan. 1
On January 1, regardless of the outcome of fiscal cliff negotiations, Americans will be hit with a $1 trillion Obamacare tax hike.Obamacare taxes are already causing health insurance costs to soar because: The Problem with the Patient Protection and Affordable Care Act is that Nobody Can Afford It. Obamacare is another direct hit on the middle class.
Obamacare contains twenty new or higher taxes. Five of the taxes hit for the first time on January 1. In total, Americans face a net $1 trillion tax hike for the years 2013-2022, according to the Congressional Budget Office.
The five major Obamacare taxes taking effect on January 1 are as follows:
The Obamacare Medical Device Tax... The Obamacare Flex Account Tax... The Obamacare Surtax on Investment Income: This is a new, 3.8 percentage point surtax on investment income... The Obamacare “Haircut” for Medical Itemized Deductions... The Obamacare Medicare Payroll Tax Hike...
Is there anything good in the deal struck by Biden and McConnell? Actually, there is and especially on the estate tax front.
The Bush tax cuts had a $5 million dollar exemption on the estate tax before an estate tax rate of 35% kicked in. When the Bush tax cuts expired, the floor for the estate tax drops to $1 million and the tax rate jumps to 55%. The estate tax will have a devastating impact on small family businesses who simply don't have the cash to pay the tax.
What does this mean?
Are New Inheritance Tax Laws Really Aimed At The Rich? Or Is The Average Joe Getting Caught In The Cross Fire?
What Are The New Inheritance Taxes Going To Be?
Currently, there is a $5 million estate tax exemption, and only those who stand to inherit an estate that exceeds that amount have to pay a tax rate of 35%. In January, 2013, many liberals have been celebrating what they consider to be a fair tax on the rich person. What they don’t realize is that the$ 1 million exemption and 55% taxation for those whose estate exceeds 1 million, will affect many Americans who could hardly be considered as wealthy. In this day and age, it doesn’t take much for an estate to add up to a million dollars. If you consider house, 401(k), savings, and other investments and assets, many people will fall into the new tax category.
What Will Happen To The Average Small Farmer When The New Inheritance Tax Is Imposed
97% of farms, small ranches, and small businesses will be affected by this tax. The problem is, the recipients of the inheritance are small-time people who barely make enough each year to scrape by. Individuals like this will have no option but to come up with the 55% tax to give to Uncle Sam, or they will be forced to sell the family farm or business that has been in the family for generations. Most farmers don’t just have $500k just sitting around as a tax fee for a property worth 1 million dollars.Fortunately, small businesses and farms who would have been hit the hardest by the estate tax escaped the tax collector's noose. According to Politico "The estate tax will have a $10 million exemption per a couple with additional inheritance taxed at 40 percent", here.
The new inheritance tax could represent the end of an era. The death of the “family farm” as we know it to be today. Even if you are not a farmer or a business owner, your inheritance may be at stake.
Although the Democrats couldn't wait to sink their carnivorous fangs into those productive and entrepreneurial bourgeois that they hold in the highest contempt, the Democrats lost on this issue and probably because reasonably astute Dems understood that ballot box blowback would be potentially severe. A farmer really doesn't have anything of value except his dirt and small family farms and entrepreneurs aren't swimming in cash like trust fund babies.
Financial blogger Dan Mitchell summed it up best: Grading the Fiscal Cliff Deal: Terrible, but Could Be Worse.
I was expecting even worse, so this deal....almost seems like a relief.The Democrats didn't get all the tax increases they lusted for during this round of negotiations. They wanted $1.6 trillion in new taxes on top of the $1 trillion in Obamacare taxes. They ended up with $700 billion in new taxes plus the Obamacare taxes.
Sort of like knowing that you were going to have your arm amputated, but then finding out that at least you’ll get some anesthetic. You’re not happy about the outcome, but you’re relieved that it won’t be as bad as you thought it would be.
But let’s not delude ourselves. This deal is not good for the economy. It doesn’t do anything to cap the burden of government spending. It doesn’t reform entitlement programs.
And we may even lose the sequester, the provision that was included in the 2011 debt limit that would have slightly reduced the growth of government over the next 10 years.
What a dismal ending to 2012.
Nobody, Republican or Democrat, cut one cent in spending and in fact the deceptively titled American Taxpayer Relief Act of 2012 also contains typical big spending pork because absolutely nothing passes in congress without doling out taxpayer dollars to their crony capitalist pals who fill campaign coffers. ABC reported a few corporate welfare highlights.
‘Fiscal Cliff’ Deal Also Doles Out Millions for Hollywood, Railroads, Rum Producers
$430 million for Hollywood through “special expensing rules” to encourage TV and film production in the United States. Producers can expense up to $15 million of costs for their projects.Moving along, the American Taxpayers Relief Act did offer some relief to tens of millions of middle class taxpayers who would have been ensnared in the Alternative Minimum Tax (ATM), a nasty piece of legislation that's been around since the 1960-70's as a measure to close tax loopholes for high income earners. However, inflation has now pushed many middle class wage earners into the ATM so Congress has been patching the ATM for many years.
$331 million for railroads by allowing short-line and regional operators to claim a tax credit up to 50 percent of the cost to maintain tracks that they own or lease.
$222 million for Puerto Rico and the Virgin Islands through returned excise taxes collected by the federal government on rum produced in the islands and imported to the mainland.
$70 million for NASCAR by extending a “7-year cost recovery period for certain motorsports racing track facilities.”
$59 million for algae growers through tax credits
to encourage production of “cellulosic biofuel” at up to $1.01 per gallon.
$4 million for electric motorcycle makers by expanding an existing green-energy tax credit for buyers of plug-in vehicles to include electric motorbikes.
Finally, the Congressional Budget Office (CBO) estimated that the American Taxpayers Relief Act will add $4 trillion to the $16 trillion pile of debt, here. The CBO is notorious for underestimating the cost of everything and overestimating anticipated revenues. Spending always escalates and reductions in spending never materialize.
FISCAL CLIFF DEAL: $1 IN SPENDING CUTS FOR EVERY $41 IN TAX INCREASES
According to the Congressional Budget Office, the last-minute fiscal cliff deal reached by congressional leaders and President Barack Obama cuts only $15 billion in spending while increasing tax revenues by $620 billion—a 41:1 ratio of tax increases to spending cuts....
In 1982, President Reagan was promised $3 in spending cuts for every $1 in tax hikes,” Americans for Tax Reform says of those two incidents. “The tax hikes went through, but the spending cuts did not materialize. President Reagan later said that signing onto this deal was the biggest mistake of his presidency.
In 1990, President George H.W. Bush agreed to $2 in spending cuts for every $1 in tax hikes. The tax hikes went through, and we are still paying them today. Not a single penny of the promised spending cuts actually happened.Meanwhile, Obama and the Democrats have vowed to continue their crusade to raise new taxes and new revenues, even if the entire US economy is nuked into impotency and America is blasted back to the Stone Age. The Republicans have vowed to help the Democrats, so long as their precious and endless wars are protected from the budget scalpel.
But make no mistake. At the end of the day, many folks will be paying higher taxes, 77% of American households to be precise according to Bloomberg. The rich won't feel the pinch nearly as bad as the working class wage earners because for the working class the pinch turns into a big painful bite when these folks loose $40 bucks a week while struggling to house and feed their families in a statist run economy that sucks and offers them nothing in the way of job opportunities or upward mobility.