Tuesday, November 27, 2012

Comment rescue: raising your taxes and cutting government services is a "win win"

There are many perspectives on the so-called "fiscal cliff" that faces the US in just over a month thanks to the dual financial irresponsibility of both President Barack Obama and the US Congress.

This one, expressed at DelawareLiberal by cassandra m., is a startlingly candid admission that raising taxes on everyone while reducing services is a good thing, a "win-win":

The first thing to do is to remember that the $3500 average is an average that includes all tax brackets. People in the lowest taxable income range would see approx $400 increase, while the 1-2% who got the maximum benefit of the Bush tax cuts would see a $120K increase (approx.). The second thing to do is to remember that there are portions of the entire tax cut picture that were meant to expire. Such as the payroll tax reductions that were a part of the stimulus package. Middle class and working class people will feel this one more since that represents the larger portion of the tax cuts they got. And this cut largely stood in for raises they didn’t get but should have. The third thing to do is to remember that the Bush tax cuts were never paid for. Never. And one very large part of the deficits and debt that folks are screaming over come from the fact that GWB gave away alot of money for 10 years that has never been accommodated in the budget. 
The fact is that most Americans aren’t going to see a $3500 increase. But there will be an increase. And if the fiscal cliff does happen, you get increased revenues AND you get spending cuts that will certainly address the concerns of the debt and deficit hawks to some extent. Really, it is a win win. Sure it hurts everybody, and for all of the folks who keep saying that no household would manage its budget like this, hurting everybody is something of the point of the kind of austerity that keeps getting demanded. And here we are being treated to the spectacle of folks who are usually having on about too much spending and too much debt objecting to one big solution that attacks them both. 
I doubt that we’ll go over the fiscal cliff, and that President Obama will get his tax cuts for income under$250K. But even if we do, it won’t be long before the middle class portion of those cuts gets restored.
The source for her figures is here.

Checking that source reveals the nature of the "win win."

The middle-income rise, as cassandra points out, would not average $3,500/year, but what she doesn't tell you is that it would average $2,000/year, and that the poorest households would see a marginal rate jump of 5%, that the standard exemption for married couples filing jointly would drop by nearly $2,000, and that the fiscal cliff is not all about the Bush tax cuts, not by a long shot.  Poor people will be hurt by the expiration of the Obama stimulus tax cuts of 2009, middle-class people will be hurt by the failure of the government to renew the Alternative Minimum Tax "patch," and a large bite on the rich comes from new taxes for the implementation of Obamacare.

To quote the original Tax Policy Center document:

Average marginal tax rates would increase by 5 percentage points on labor income, by 7 points on capital gains, and by more than 20 points on dividends.
Absent legislative action, most tax cuts enacted since 2001 will expire on January 1, 2013, raising tax rates, reducing deductions and credits, and throwing millions of taxpayers onto the alternative minimum tax (AMT). The estate tax would hit more than ten times as many estates as in 2012. The 2 percentage point cut in the payroll tax rate would lapse, raising taxes on more than 120 million households with workers.2 Short-term tax breaks that Congress regularly renews, some of which have already lapsed, would disappear, boosting taxes for both individuals and businesses. And the 2010 healthcare legislation would impose new taxes on high-income taxpayers.
Federal tax collections would jump by more than $500 billion in 2013, more than 20 percent above what they would be without the cliff. Nearly 90 percent of all households would face tax increases averaging nearly $3,500. Middle-income taxpayers would see an average increase of almost $2,000.
The AMT operates parallel to the regular tax and sets a floor on total tax liability. Taxpayers whose income exceeds the AMT exemption must calculate both regular tax and AMT liabilities and pay the larger amount.6 EGTRRA temporarily increased the AMT exemption to preclude the alternative levy’s reducing the impact of other tax cuts in the legislation. Since then, Congress has repeatedly “patched” the AMT by setting higher exemptions but only for a year or two at a time. The most recent patch, enacted in 2010, covered tax years 2010 and 2011 and raised the 2011 exemption from $45,000 to $74,450 for couples and from $33,750 to $48,450 for others. If Congress does not enact another patch and extend it retroactively to the current year, the AMT will hit tens of millions more taxpayers, boosting their 2012 tax liability substantially.
Expiration of many tax provisions in 2013 would cause federal tax liability to jump by more than $500 billion in that year alone (table 4).12 That amount would represent more than a 20 percent increase in revenue, relative to the amount that would be collected if none of the provisions in the cliff took effect.
Exactly how is this a "win win"?  That idea is proposed by creating a specific straw man of the "deficit hawk," and saying, in effect, Isn't this what you wanted?  An increase in revenue and a decrease in services?  Well, this is what it looks like.

Actually, ah, . . . no.

What this looks like is a massive failure of the American government (on the part of both parties) to tell the truth about the realities of the dreck they've been selling us for over a decade.

That we can continue to have "free stuff" without every paying for it (Bush and Obama).

That we can continue to fight expensive, bloody, endless wars on a bloated defense budget without any consequences (Bush and Obama).

And that--without an election hanging over our heads--we can finally do what we've been wanting to do:  raise marginal tax rates on EVERYBODY and simultaneously continue to expand government spending.

In other words, if we go over the fiscal cliff, just because tax rates go up, expenditures won't go down (bet on it; they will start by exempting Defense, Medicare, and other major programs from the sequestration), and instead of a "win win" we will be in worse shape than we are now.

"Win win" my ass.

1 comment:

Hube said...

The sad thing is, services won't be cut as there will BE no cuts. There never are, most especially where needed. "Cuts" in DC parlance means "reductions in growth." Nothing is actually "cut."

Only the most hardcore of hardcore Republicans/conservatives would be opposed to any sort of revenue increase if spending was actually substantially cut. But since it's not and won't ever be, this why I (and so many others) have real problems with seeing my taxes upped.