Wednesday, January 2, 2013

Fiscal Cliff Averted, Sellout Firmly in Place

Obama and the DNC sell out the 99% again.

Here are the details as we now know them.

  • The GOP did not want to raise income taxes on the wealthy.
  • The GOP wanted to tie Social Security and Medicare cuts into any deal.
  • The GOP did not want to see extensions in key Democratic favored programs.

So 2 out 3 isn't the epic fail for the Regressives that the media has painted it. Despite claims by the President that the deal reached only addressed the tax side of the equation President Obama and Nancy Pelosi have already agreed in principal to cutting SS through a deceptively named scheme called  "Chained CPI". The way it would work is the annual cost of living adjustment for Social Security benefits would be indexed to the chained consumer price index rather than the CPI for wage and clerical workers (CPI-W) to which it is now indexed. The Obama Administration is claiming that the chained CPI provides a more accurate measure of the cost of living, however Economist Dean Baker said this:
This will lead to a reduction in benefits of approximately 0.3 percentage points annually. This loss would be cumulative through time so that after 10 years the cut would be roughly 3 percent, after 20 years 6 percent, and after 30 years 9 percent. If a typical senior collects benefits for twenty years, then the average reduction in benefits will be roughly 3 percent.

The GOP did get a $150,000 increase in the tax ceiling, and it joined the Democrats in supporting several tax credit extensions, and in ending the payroll tax cut. President Obama campaigned on raising taxes on those making over $250,000 a year, what he got instead was a 4.6% hike on regular income [non-capital gain income] over $400,000 a year, thus saving congress from having to pay a higher rate and a bigger tax increase on the middle class by killing the FICA tax cuts from his first term.

Here is what the deal does:

All wage earners will see their payroll taxes return to 6.2% on earnings up to $113,700 for Social Security and Medicare. Thus continuing the most regressive tax structure in American history, literally the more you make the lower percentage you pay. A couple making $113,700 a year pays the exact same amount as a couple that makes $113,700,000 a year despite them making 1000 times more. So the average couple in the example pays 6.2% and the billionaire couple pays .00062%. An actual progressive would have said "Hey lets lower the rate and make everybody pay the same rate on 100% of their income".

It's OK people, President Obama has our back.

Individuals who earn more than $400,000 and couples who make more than $450,000 will see income tax rates increase from 35% to 39.6% People like Mitt Romney may get a small rate increase on capital gains and dividends which are expected to rise from 15% to 20%, a 5% increase. In addition to the capital gains and dividend rates, health care reform will levy a new surtax of 3.8% on capital gains for wealthy Americans, pushing up the top capital gains rate to 23.8%. 

This capital gains rate is however still lower than the 39.6% top rate most occupationally successful people [Doctors, Lawyers, Programmers, etc] will pay. There really isn't a valid reason why profits from financial transactions should be taxed at a lower rate than regular income. The Regressives like to pretend it is to protect grandma when she sells her home, wrong. There is a separate tax exemption for that already and retirement funds are already tax sheltered.

Estate Tax Rev under 4 different proposals

Estate tax rates are poised to rise from 35% to 40% for estates valued at more $5 million. Again this is still lower than the Clinton rates of $1,000,000 exemption [not indexed to inflation] and a 55% rate. This is a massive give away to the Plutocrat set, in fact it will cost us $375 billion over the next decade if we keep the estate tax from going back to its Clinton-era levels. That's twice the savings from switching to chained CPI. Only 3,730 households will pay the estate tax next year if the exemption is set at $5 million, versus 47,170 if it's set at $1 million. As you can see in the chart above, there's about a $400 billion difference over the next decade between letting the estate tax go back to where it was under Clinton and keeping it where it is now. 

Creation of a permanent inflation "patch" that would shield millions of middle class taxpayers from the AMT (Alternative Minimum Tax that is supposed to guarantee that wealthy taxpayers pay a minimum amount of federal income tax, regardless of deductions, credits or exemptions. In essence, it is a flat tax with two brackets -- 26% and 28%). 

However it is worth noting that this only applies to regular income, not capital gains or income shielded by the myriad of business loopholes the wealthy enjoy. If it actually worked than people like Mitt Romney would not have gotten away with paying less than 10% year after year on his income taxes.

Extended Measures/Programs:

- Unemployment extended for one year, preserving benefits for 2 million Americans who were at risk for losing benefits at year's end.
- The Child Tax Credit, Earned Income Tax Credit and Obama Opportunity Tax Credit (college tuition credits) will all be extended for five more years.
- One-year extension of the Research and Experimentation Tax Credit and Production Tax Credit, Alternative Energy Credits, along with an extension of the 50 percent Bonus Depreciation for businesses' capital expenditures.
- One-year extension of the DocFix current Medicare reimbursement rates, shielding participating doctors from a potential 27% cut in reimbursements.

Last...It also temporarily delays the sequester -- i.e., billions of dollars in across-the-board spending cuts -- for another two months....when the debt ceiling debate will be a full force. If the past is indeed prologue, than we can expect President Obama to negotiate even harsher cuts with his GOP buddies to SS and Medicare in order to get a debt ceiling deal.


What have others said about the deal?

The HuffPo says that “Coming out of the meeting with the vice president late Monday night, many Senate Democrats conceded they were displeased with aspects of the deal but agreed with the vice president’s larger point.”

Krugman calls Obama the “conceder in Chief.”

MoveOn says “We just finished an election in which the American people made clear that they want the wealthiest 2% to finally pay their fair share of taxes, but this agreement fails to meet that test. Voters gave President Obama a mandate to end the Bush tax cuts for those making more than $250,000. He has not delivered.”

Further reading:

Here’s the official White House agreement fact sheet on the deal (PDF).

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