The White House is calling it a victory for the middle class and the economy — the passing of legislation to avoid falling off the so-called fiscal cliff. Is it really a victory for the middle class?
Some small businesses would fall into the middle class category. As The Wall Street Journal pointed out in an editorial, the overall tax increase for small business is “substantial.”
“The new listed top rate of 39.6 percent doesn’t include the phaseout of deductions that will take the actual rate to 41 percent for many taxpayers. Add the ObamaCare surtaxes on investment income (3.8 percent) and Medicare (0.9 percent), as well as the current Medicare tax of 1.45 percent (employee share), and the real top marginal tax rate on a dollar of investment income from a bank savings or money-market account will be about 46 percent. Throw in the state taxes, and the marginal rates in many places will be in the mid-50s-percent-or-higher-range,” The Journal stated.
Overall, the measure amounts to the biggest tax hike in 20 years and there will be spending increases. Some special-interest businesses will receive tax subsidies, such as $12.1 billion for the wind industry, and $248 million for Hollywood producers. The president said he wants to work toward tax reform this year. The Journal calls the bill “a walking repudiation of that concept.”
It is questionable whether there really will be any deficit reduction because much of the new revenue will be given away as special-interest favors. Also, the bill increases spending by $30 billion in extending jobless benefits.
All we heard from the White House is that the rich must pay more in taxes and the middle class must be spared tax hikes. That message really worked for President Obama, but let’s face it, what happened is not exactly what was promised. Overall, the majority of taxpayers will pay more of their income to the federal government, and that includes the middle class, according to reports by the various news outlets. There are many unresolved issues and the bill merely postponed additional budget decisions.
Only a dent was made in the long-term deficit. Financial experts are calling the passage of the bill “a stopgap, not a solution.” There is a need to raise the debt ceiling. If it isn’t raised, the federal government will not be able to pay all of its bills by the end of February. There will be a battle over that issue, with the White House and Republicans still far apart. Republicans still are intent on curbing spending. They don’t want the debt ceiling raised unless there is a cut in spending.
Also ahead is a partial shutdown of the federal government at the end of March. Congress last year agreed to fund the government only through March 27. This issue will be another one that goes down to the wire, and the division in Washington, D.C., will result in another major confrontation.
The economic issues that loom ahead will have an influence on the economy, which is in a slow recovery mode.
The fiscal cliff bill merely postponed action on a number of budget issues. The government is hanging onto a limb that is overloaded with fiscal and tax issues.