In 2011, President Obama asked for, and Congress passed, a "Payroll Tax Holiday" that cut the payroll taxes all of us pay for Social Security from 6.2% to 4.2%. To quantify that a little better, if you are a couple making $113,000, your annual taxes went down $4,500. Believe it or not, the payroll tax was not popular with Republicans, particularly those in the House, who insisted on pairing spending cuts commensurate with the "tax expenditure" loss on income. This is one of the most regressive taxes our Country maintains, and a stout affront to anyone who suggests 47% of Americans don't pay taxes.
Put in the most practical terms, anyone who is living paycheck to paycheck is going to find the swinging trapeze a couple feet short next Friday. Economists have projected that the resumption of the payroll tax will cost the nation between 500,000 and 1 million jobs, boosting unemployment by 0.4%.
The Fiscal Cliff Deal, made around 11:00 pm last night with passage in the House, is projected to raise $600 billion over 10 years, but, if you've been paying attention, government math is never to be trusted. Projected revenue normally includes presumptions in increased economic activity, increased employment, and a steady level of inflation. The term "cuts" is often used to describe the failure to increase budgets.
- If you make over $450,000, your taxes automatically go up for income over that threshold, from 35% to 39.6%.
- If you are an individual making over $250,000 or a couple making over $300,000, your itemized deductions will be capped and the personal exemption will be phased out.
- Capital gains income for individuals making $400,000 and couples making over $450,000 will increase from 15% to 20% (unclear whether this is a marginal rate, but presume it is.)
- The Alternative Minimum Tax is permanently fixed (!!) by indexing it with inflation. The AMT had been an annual point of anxiety for middle class tax payers as they had to wait out the Congress's decision whether to move the bar. The tyranny of a lazy Congress is over (at least as far as the AMT is concerned.)
- Obama tax credits (child tax credit, earned income credit, $2,500 tuition tax credit, stimulus tax credits) extended for five years.
- Long-term Unemployment Benefits extended for one year.
- $109 Billion in sequestration cuts postponed for two-months at a cost of $24 billion.
I presume that for average Americans the payroll tax resumption will be characterized as "Obama raising my taxes" when that was a cut he fought for, won, and maintained over the past two years.
We made it to the other side of the cliff, at least temporarily. The Country still has a tremendous Debt to address, with this deal simply taking the red button out of the hands of children. Hopefully, moving forward, our Country can address its big problems outside of the contexts of threats and foot stomping. That is admittedly naive (if I admit I'm being naive, does that mean I'm not naive?), but it certainly feels like the fiscal cliff may have provided the foundation for a reboot. We don't yet know why House Republicans capitulated on a deal that they had originally threatened to reject, but it is a good sign.
That's all for today. I hope you all have taken the opportunity provided by a New Year to think about whether you are living a life you love or just one that gets you by. My little daily quip isn't some annoying taunt by a morning person. It is encouragement to look around every day and ask that question.
Have a great Wednesday doing what you love!