Sunday, November 25, 2012

Short: Your cost share of the fiscal cliff

How much will you have to pay if Congress doesn't work out a deal on taxes before the end of the Bush tax cuts on Jan. 1, 2013? Prognosticators and economists have been warning us for awhile that it would pitch the US economy back into recession. I hope Congress can reach a deal, but in case it doesn't, how bad will it be?

A cut of about 4% for most people

We're probably losing the Social Security 2% tax holiday anyway, so the end of the Bush tax cuts means an extra 2% loss for most of us. That's not as bad as I feared.

Worse will be the job losses if we tip into recession. I'd like to avoid that if we can. The most plausible way is to minimize the cuts for the lower and middle class --preferably just the 2% paycheck cut from reinstating the full Social Security tax.

The effect on the upper income earners... I don't know what it will do to the economy. I'm curious to find out, but also a bit fearful.


Readable numbers from MarketWatch.
More numbers, still fairly readable, from Yahoo News.
Scenarios from BankRate, including which pieces will hurt different groups the most.


chris said...
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Anonymous said...

The most interesting aspect of the "cliff", which is really just a staircase, is that perhaps it might produce the opposite result than what everyone thinks. When the tax cuts were enacted, they were supposed to insure prosperity. The opposite occurred in the end. Meanwhile, the Clinton tax increase in 1993 was supposed to result in a destroyed economy -- accordingly to Republicans -- and we had a boom instead.

I'm not convince that tax policy has all that much impact on the economy's trajectory. It's something of a zero-sum game anyway. The accumulation of individual decisions are far too complex to predict. For example, since taxes will be higher, people will gravitate toward spending on tax-reduced items such as homes. This will raise home values relative to the market for other goods, those with homes will feel wealthier, and spend a little more. Or not. Others will do the opposite. That's why it's impossible to predict accurately.

Perhaps businesses will start to think more long-term than this-quarter, and invest in R&D since consumers are spending less and they can't make as quick a buck from consumer spending on crap.

All of this argument just masks the more obvious impulse our government should have: build. Our infrastructure has degraded and depreciated in favor of lowering taxes today. If we took the extra money (and borrowed a little more, too) to invest in public/shared assets that pay off in lots of quiet ways, we would probably realize an economic boom for quite some time. There are so many technologic advancements that would benefit everyone that we could put in place if we would just spend the money on that instead of tax cuts or wars. But nobody wants to pay the bill today -- and politicians can get elected by ignoring infrastructure in favor of lower taxes. Pity.