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Thursday, December 27, 2012

A-Cliffing We Will Go

High-ho O Merry-O, A-cliffing we will go....

I think the widespread propaganda over the Bush tax cuts has completely confused people and many analysts as to what the loss of the current tax provisions would mean for lower and middle-class families. 

To the impact of the income tax provisions, we have to add the 2% payroll tax increase. For a person making 20K that is $400, for a family making 50K it is $1,000, and for a family making 100K it is $2,000. That alone would be a significant drag on the economy, although a necessary one. 

To that, we have to add things like the expiration of the doubled child tax credit, which will cost families $500 more in taxes per kid. So a family making 50K with two kids would pay $2,000 more in federal taxes. But then there is the increase in tax rates, which adds to that. Altogether it will be close to $3,000 in extra taxes.

Some of the worst hit are heads of households - EITC cuts, child tax credit cut, higher payroll taxes, higher marginal rates. Some will get  tax increases of 20% of earned income or even more.

Don't believe me? Notice this bit of propaganda put out on the Whitehouse.gov site - they are trying to pretend that Obama put in these tax cuts in the first place and direct it toward Hispanics, but the numbers are right:
 http://www.whitehouse.gov//sites/default/files/docs/state-reports/Hispanic-Fact-Sheet.pdf

There are a number of other changes, most of which are listed here. Some would cost families sending kids to college a lot of money, and some would cost those paying off higher ed loans a lot of money.

Of course, given these numbers, why would the GOP have more of an incentive than Obama to bend? Won't it be something of an education if these tax increases go into effect and people suddenly find out that the Bush era tax cuts weren't nearly as good for the rich as for average families?

Of course, if you are banker dealing with mortgages or a landlord, this sort of thing makes you sweat. Anything that would pull two months of mortgage or rent payments out of the earnings of so many families is going to show up in the form of defaults and unpaid rents. 

Still, I don't see any basis for compromise looming on the horizon. The Democrats cannot afford to cut bennies, and the GOP has no reason to take the blame for all the bad without doing anything to actually improve our fiscal situation. 

It could well be March or April before a compromise is reached that will avert some of this. 

The Romney 47% problem wasn't created by Obama - it was created by the GOP and Bush - but they didn't get the electoral credit for it. What on earth do they have to lose now, politically speaking? A no deal is by far and away the best outcome for them.

Any possible deal will doom a lot of Democratic incumbents to severe reelection challenges, so until the whole thing comes tumbling down they are afraid to deal.

Comments:
On the doubled tax credit, shouldn't that be $1000 for the two-kid family? Or does the original credit sunset on Dec. 31st too?
 
The committee, the super committee I mean, came up with a solution and it was applauded even if it was meant to be a doomsday machine. I am pro-gridlock. If going over the cliff is the price we pay for never passing another law I am all for going over the cliff. The cost is worth it.

Regarding this being an education for the populous, I was sure they would have learned just from Obamacare and the Protection Bureau being rammed through. For the civil liberties they have lost. For the phony class warfare. Etc., etc. But they didn’t learn. Going over the cliff will be like detention after school for not doing their homework.

 
John - 50K family with 2 kids pays $1,000 in FICA and $1,000 more cause of -$500 per kid tax credit.

After that, you figure higher tax rates.


 
Joseph - but clearly we're not going all the way with this.

I guess we're just gonna whack ourselves on the toe with the hammer until the pain gets so bad we change tactics.

We've stopped even trying to make this work - our political process is now all about distributing blame for the failure.
 
"That alone would be a significant drag on the economy, and an unnecessary one, given that SS/Medicare is due to collapse within ten years anyway."

There. Fixed it for ya.
 
I know some people right now (a few of which are self-employed) who are foregoing some work hours every week to take care of elderly parents. They aren't going to be able to forego those work hours when the tax cuts expire but they'll have a difficult time getting all those hours back.

All this on top of the Fed printing money at an accelerated rate to buy government debt. So even if your wages eventually rise to cover for the devalued dollar, your nominal wage increase will put you in a higher tax bracket, too.

Name your poison. (Or take both just to make sure.)
 

Charles--

I've been thinking about that, too. Tax brackets are inflation-adjusted, but they're adjusted for the previous year's inflation levels. If we go over the knee of the hyperinflation curve, with inflation rates rising exponentially, the tax brackets won't keep up. Plus, I think there are some important caps and exemptions which are not inflation-adjusted.
 
From the taxsquad link:

" it may be appropriate to review your tax situation and plan for all eventualities."

I am trying to do this. Does someone have a list of the safest homeless shelters in the southern Great Lakes region?
 
If you are a Democrat you have to love the fiscal cliff. Forever we have been hearing the harsh refrain of the evil Bush tax cuts and high defense spending. Well, the Cliff gives us the remedy. We go back to the loved Clinton tax rates and peace dividend defense spending.
 
We get tax refunds from the EITC and the child tax credit, but I've always tried to keep from depending on them.
 
Well, I don't think this will go on for too long.

You can't slap tax increases on the lower income brackets this way and expect to escape disaster!
 
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