With what is called the ‘fiscal cliff’ fast approaching we now turn our attention to taxes. On January 1 unless Congress and the President act all of the Bush era tax cuts will expire. The Democratic position is to make the cuts permanent except for those making more than $250k. The Republican position is to make all of them permanent because, otherwise the government is being very mean to rich people.
Also expiring on December 31 is the temporary cut in payroll taxes. These are taxes that working people (ie not Mitt Romney) pay to finance Social Security and Medicare. These tax cuts will not be extended.
Regardless of who wins the presidential election in November or what compromises Congress strikes in the lame-duck session to keep the economy from automatic tax increases and spending cuts, 160 million American wage earners will probably see their tax bills jump after Jan. 1.
That is when the temporary payroll tax holiday ends. Its expiration means less income in families’ pocketbooks — the tax increase would be about $95 billion in 2013 alone — at a time when the economy is little better than it was when the White House reached a deal on the tax break last year.
Now from an economics point of view, this is not that bad. Payroll tax cuts are a terrible way to stimulate the economy, they just dribble out very little money and because of something called the Permanent Income Hypothesis they really do not increase consumer spending very much, which is the key to a successful tax cut.
But on the fairness issue allowing these tax cuts to expire while continuing the tax cuts for the very wealthy is just plain wrong. And of course the tax cuts for those making more than $250k will be extended even if Mr. Obama is re-elected. Why, because Republicans will be willing to drive the economy off the fiscal cliff, but Mr. Obama and the Democrats will not.
Yep, based on history the Dems will cave, in fact the Dems might not even be a viable American political party. Maybe they will move to the Philippines and the new name of the party after that could be the Manila Folders.