The fiscal cliff, which I would rather call the fiscal slope, is maybe right around the corner. Or maybe it isn’t. Why the slope instead of the cliff? When we will experience a rather steep slide instead of a sudden dlrop. It will be a while before Americans realize exactly what their government has done to them and they have skidded to the bottom of the slope. Fiscal cliff, or slope, or not, Americans will experience a tax awakening as they approach the bottom. Policies will expire causing a $494 billion tax increase in just one year.
The fiscal slope will be steepest at the beginning of 2013. All income tax rates will increase on January 1 for all levels of income, as they return to the pre-Bush tax cut levels. The middle class will suffer the greatest as the death tax increases to 55% for estates over $1 million. This will affect more people than you think, such as those having a home and retirement account. The child tax credit will be cut in half as it decreases from $1,000 to $500 per child. Most middle class and senior citizens who do not itemize deductions will suffer damage, as the standard deduction for married couples will be reduced by half to the amount for singles. After the initial shock, the fiscal slope will level out, but will continue to decline for at least ten years and for an indefinite period after that.
Even if we do not slide down the fiscal slope, Americans will still experience tax shock. Since Congress has not indexed the Alternative Minimum Tax, the number of families who have to calculate their tax twice will rise to 31 million from last year’s 3 million and will cost taxpayers $88 billion. Taxes will rise on businesses and will be passed on to consumers. Money for tuition and education fees will no longer be deductible and teachers will no longer be able to deduct classroom expenses. Student loan interest will no longer be deductible. Taxes on savers and investors will increase.
And then there is Obamacare, which is now with us with the re-election of O’. A new medical device tax will penalize producers with a 2.3% excise tax on gross sales, which translates to about a 15% tax on profits, and will be passed to consumers by companies not driven out of the country by the tax. Medicare payroll tax will rise from 2.9 % to 3.8% for the “rich.” Businesses will lay off workers to decrease the number of full-time employees to less than 50 to avoid the Obamacare penalty. Employers will also reduce full-time employees to part-time for the same reason. The unemployment rate will then look rosier as employers hire more part-time workers to fill the void. O’ will take credit for putting more people to work.
An immediate shock will be the expiration of the payroll tax cut. The 2009 cut in FICA from 6.2 percent for workers and their employers will increase from 4.2% to the original 6.2%. About 160 million workers will be affected and the cost to a typical working family will be about $1,000. The increase in employment tax could cost the economy a million jobs and one percent in GDP.
Will we avoid the fiscal slope? Who knows? I wonder if anyone in Washington really wants to avoid it, even though pols of both parties adamantly claim they do. President O’ declared in a presidential debate that sequestration “will not happen,” but in order to increase revenue by raising tax rates, has doubled his tax demand to $1.8 trillion, a level unacceptable to Republicans. Republicans have declared that they will not approve any tax increases, which is unacceptable to Democrats. But in order to increase revenue they will accept tax reform and decrease tax rates, which Democrats will not tolerate.
This brings to question the relationship between tax rates and revenue. Will a decrease in tax rates bring about an increase in revenue? Republicans say yes. Democrats say no. History is on the side of the Republicans. Calvin Coolidge, JFK, Ronald Reagan, and George W. all decreased tax rates and revenues increased. Slowly but eventually for Bush II. Democrats are in denial, saying that revenues did increase when Clinton increased rates. True, thanks to a booming economy engineered by Newt Gingrich and a Republican Congress. Tax increases have never resulted in the promised revenues.
We seem to have the classic Chinese standoff, leading me to believe that we will start sliding down the fiscal slope on January first. Both parties believe they will benefit. Republicans believe that the deepening recession that will certainly occur will be O’s fault and the Democrats will suffer in 2014. Democrats believe that the deepening recession that will certainly occur will be blamed on Republicans because they did not let O’ have his way. This will probably be the case, considering the sympathy of the American press to O’s cause.
The only sure outcome to all this is that the American people will suffer. Have a nice day.

Posted by at December 16, 2012
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