Fiscal Cliff?

Oh, what the hell!!

Shall we go over the fiscal cliff? Together? Let's go! 

The positives outweigh the negatives, in my opinion.  And many of the negatives can still be countered by Congressional action anytime after January 1.

In the summer of 2011, the Republicans recklessly threatened not only the U.S. economy but the world's economy by refusing to approve the raising of the U.S. debt ceiling.  In exchange for finally raising it at the last minute in August of 2011, they demanded substantial budget cuts, and thus the Budget Control Act (BCA) of 2011, was passed.  

The BCA created a bipartisan "super committee" that would agree on $1.2 trillion of budget cuts.  If the super committee could not agree and could not create an actual bill that would pass the House and Senate by November 23 of 2011, then "Sequestration" would kick in, meaning that come January 1, 2013, $1.2 trillion of automatic cuts would begin to hit the economy.  This $1.2 trillion in cuts would be stretched out over 10 years.

So, come January 1, the total cuts for 2013 are projected to be $109 billion.

Half of these cuts are to come from military discretionary spending, and the other half from non-military discretionary spending.  Exempted from the cuts are some big ones:  Social Security, Medicaid, Veteran's benefits, CHIP, unemployment insurance, federal worker's wages and several other items.

I am all for major cuts to our bloated military budget, but have you found it hard to get any hard data on the actual cuts required by 
Sequestration?  I know I have.  The media has not been all that forthcoming or useful.  They'd rather hype the "FISCAL CLIFF!!" than actually explain it to people.  But there ARE a lot of components in this "fiscal cliff."  There is a link here that explains a lot of it.

Although unemployment insurance spending is exempted from the "Sequestration" cuts, which is good, "Extended" unemployment benefits will expire on December 31 anyway, which is bad.  The longest period that anyone will allowed to be on unemployment will go back to 26 weeks.  Unemployment benefits had been "extended" from the 26 weeks to 99 weeks, since so many people were still unemployed.  So, a lot of unfortunate people stand to lose their unemployment benefits on December 31, unless Congress acts.  

Another boulder in the "fiscal cliff" but not cut by Sequestration is the Alternative Minimum Tax (AMT).  The AMT, created in the 1960's to stop the rich from using accounting tricks and tax havens to avoid paying their fair tax share, has been "adjusted for inflation" every year until....the Tea Party Republicans came to town!!  Although the AMT was not all that successful at getting the rich to pay their share, this Republican refusal to adjust it for inflation means that about 28 million more American families will now be subject to the AMT.  Oh boy, a new tax on top of the others!  This alone will take about $64 billion out of the pockets of these people who would now be subject to the AMT.  On the other side of the coin, the government gets a fresh $64 billion.

Coinciding with all these mandatory cuts and the expiration of other cuts or extensions, all of the Bush tax cuts are also set to expire January 1, prompting an income tax increase across the board.  This is not a particularly good time to increase income taxes on those whose incomes have already taken a hit by the mega-recession of 2008.  Of course, those millionaires and billionaires will have their top rate restored to 39.6% from the current 35, and even though they can easily afford to pay more in taxes, they will likely cry and whine the most, and they will find new loopholes or get Congress to create new loopholes to help them shelter their precious booty.  The rest of us will see about a 3% increase in our income tax rates, and that's going to squeeze some of us pretty hard.

Don't get me started (too late!).  Historically speaking, the top tax rates are VERY LOW right now, even at 35% of 39.6%.  Strange how it seems that when upper tax rates were significantly higher than they are now, the country thrived quite well, thank you.  And now that they have been cut drastically, starting back with Ronald Reagan, things haven't worked out so well for the vast majority of workers (and people) in the U.S.  But the rich are doing QUITE WELL, so fuck off, peons! 

Another digression:   Let's remember that the Republicans have pledged to shrink the size of government so small that it could be "drowned in a bathtub."  They have largely been successful at reducing government revenues significantly (through lowered taxes on everything from income to capital gains) and thus, when the government starts running low on money, well then, services will have to be cut.  Lower revenues = more cuts.  The Republicans are effectively bleeding this country to death.

Capital gains are currently taxed at 15%, which is VERY low.  Not because of the Sequestration, but part of the "fiscal cliff", the capital gains tax is set to increase January 1 from 15% to 20%.  This is a good thing.  It will mostly affect the rich.  

Barring any Congressional action, stock dividends, currently treated like capital gains and taxed around 15%, will now be taxed at the earner's regular tax rate, as high as 39.6%.  This won't hurt the super-rich, but it will make dividends less attractive to those of us in the middle-income brackets.

The inheritance tax (which Republicans insist on childishly referring to as the "death tax") will go from 35% on estates valued over $5.1 million to 55% for estates valued over $1 million.  This will only affect the top 1-2% of estates, so you and I won't see much effect here, but it could substantially increase badly-needed revenue to the federal government.  

Lower-income taxpayers will be hit pretty hard by the expiration of Obama's payroll tax reductions December 31.  The payroll tax will increase from the current 4.2% back to the earlier 6.2%.  

There are several big loopholes which are not in any way affected by this "fiscal cliff" hype but cry out for attention:

• The "carried interest" bullshit has to go.  It allows those who run investment funds - like hedge funds - to reclassify their income as a capital gain, taxable at the lower 15%.  While the capital gain would go up to 20% on January 1, that's still absurdly and unnecessarily low.  Their income should be taxed at their normal income tax rate.  Eliminating "carried interest" entirely would generate another $20 billion over 10 years.
• Subsidies to major oil companies have to stop.  They are not needed by the oil companies and only hamper development of alternative energy sources.  This costs the government around $10 to $40 billion per year, depending on what you count.
• The effective Corporate tax rate is TOO LOW, around 12%, thanks to all the loopholes, credits, deductions, and use of tax havens, despite sky-high corporate profits.  The tax rates may look high on paper, but in reality, they are VERY LOW.  TOO LOW.  All these loopholes must be closed and the revenue restored to the government.  
• Firms can deduct "business expenses" of moving overseas, in effect giving a tax credit for moving jobs overseas, has to stop.  Duh!  Gee, why does it seem like practically every rule is for the benefit of the already-wealthy?!  Because the super-rich practically own Congress.  And, now, thanks to Citizens United, they can tighten their grip on Congress' throat even more.

While the "fiscal cliff" would change many tax structures, on the whole, I think we should, to borrow Obama's phrase, continue "forward" and go over the cliff without any action from Congress.  

The government seems sure to end up with a lot of new revenue that it could use to plug up some gaps in unemployment insurance, food stamps or tax deductions for children, among many other needs that are going to be slashed by the near across-the-board 10% cuts in non-military discretionary spending prompted by the Sequestration, and there would actually be some money available.

I think that public pressure is eventually going to force the Republicans to then cut income taxes again, at least on those of us that actually do struggle from paycheck to paycheck.  

Cuts to the military are long-overdue, and it's high-time the rich start to contribute again to the overall health of the nation.  This rapidly-expanding canyon between rich and poor is not sustainable.

OK, got to publish this eventually.  Goodnight!  And Happy New Year!