After all the chest thumping and foot stomping about the perils of the fiscal cliff, Congress finally acted. The worst thing about it was that the Republicans had to swallow a bitter pill crammed down their throats by the victor in the White House. Elections have consequences. Nearly 3,000,000 conservatives stayed home on Election Day because they couldn’t vote for a Muslim or a Mormon. What Obama calls a mandate was merely a series of very close wins in those few ‘key states’ that were the main target of a gazillion dollars in pre-election advertising. The majority of the country would barely have known who the candidates were, had they waited for political ads to tell them. So we have roughly three million people to thank for the new taxes, regulation, and growing deficit.
Having said that, Obama DID win and he DID stand fast on his demands, so he now owns the economy LOCK, STOCK AND BARREL (smiling as I use a gun analogy.)
But a review of the deal Congress bought off on is not totally a ‘bend over and grabb’em’ package.
For one thing, and this really matters: The fiscal cliff deal PERMANENTLY extended nearly all the tax cuts enacted from 2001 to 2010. (a/k/a ‘the Bush tax cuts'). Dicking around with these tax cuts had become a bienniel Congressional circus, and was no small reason that small businesses didn’t know whether to fish or cut bait. By making these permanent, it means – AND THIS IS IMPORTANT – it mean that CONGRESS WILL HAVE TO DO SOMETHING TO CHANGE THEM! Extending the tax cuts had been almost automatic but Congress could modify this and change that. Now they will have to actually CREATE LEGISLATION TO RAISE THOSE TAXES and everyone will have to go on the record yea or nay. So we didn’t really fare so badly on that aspect of the deal.
Another key provision in the fiscal cliff deal made PERMANENT the Alternative Minimum Tax “patch” that until now has been extended only one year at a time. The AMT was created in 1969 to make sure the uber-rich didn't dodge the tax bullet. But what defined uber-rich in 1969, has never been adjusted for inflation. That means what made you affluent back then doesn't now, but you're still taxed like it does.
Consider a family with a gross income of $75,000 in 1969. Under the regular IRS rules, you start with $75,000 and subtract deductions like state taxes you paid, and exemptions like child credits, mortgage interest, etc. Eventually, you arrive at your taxable income. You look up your taxes in the handy chart and it says you pay $1000 in income taxes.
Then you check the AMT chart. Since you are uber-rich (by IRS definitions) there is a minimum tax you have to pay, regardless of your deductions. THAT chart says a family making $75K will pay $2500 MINIMUM. PERIOD. So your tax obligation is the greater of the two numbers - in this case, $2500.
Considering inflation, that same $75K is no longer considered RICH, let alone uber-rich, but you have been being taxed as if it is uber-rich. The AMT is now ‘fixed’, meaning it won’t have to be extended or ‘fixed’ every year. This will also add a modicum of stability to businesses when they try to look down the road at what the government will be taking from them. Uncertainty is NOT the friend of job creation. This fix of the AMT should help a little. Additionally, it will keep about 28 million households off the AMT in 2013 alone. The deal extends for five years some refundable tax credits that were intended as temporary stimulus in 2009 and 2010.
There are a few exceptions to this largess. Individuals with taxable income of $400,000 and couples making $450,000 or more will again pay the Clinton-era top rate of 39.6 percent on ordinary income. (ugh) They’ll also pay a 20 percent rate on capital gains and dividends, up from 15 percent. On top of that, high-income households will pay another 3.8 percent tax on investment income starting this year under the 2010 health reform law. (Remember, the ACA that Obama said was NOT a tax but Chief Justice John Roberts said WAS a tax, hence it WAS constitutional? Hello.)
Individuals making $250,000-plus and couples making $300,000 or more will also once again face limits on their personal exemptions (PEP) and itemized deductions.
Sadly, all workers will lose the temporary 2 percentage point payroll tax cut that was first enacted as part of the 2010 stimulus. While this bites into the bottom line in your paycheck, it IS the only funding for Social Security, and with about 10,000 boomers retiring EACH DAY, the system can scarce afford a funding holiday. Just look at this as a little investment in your own retirement – and smile. Uncle Sam swears that SS will be there for YOU!
Finally, this deal takes one very important step. After more than a decade where nearly the entire tax code was temporary, Congress made most of the law permanent.
Again – the impact of this step means that if the government (the liberals and Obama) want to raise revenue (Ed. Note: didn’t you just frigging love it back under Clinton when they stopped calling raising taxes RAISING TAXES and called it RAISING REVENUE‼!) ….. where was I? OH – if Congress wants more revenue to redistribute, they will actually have to do their JOBS and ENACT LEGISLATION! What a concept! Write a law to take more of our money AND VOTE ON IT! If it passes Congress, the President will then have to SIGN IT. Put your signature on the law, Mr. President, and OWN IT!