Skip to comments.Fiscal Cliff Means 50% Tax Rates For The Middle Class
Posted on 12/07/2012 7:31:22 PM PST by blam
Fiscal Cliff Means 50% Tax Rates For The Middle Class
Politics / TaxesDec 07, 2012 - 08:12 AM
By: Money Morning
Keith Fitz-Gerald writes: If I didn't know any better, I'd think there's a small but growing group of people in Washington who think it would actually be good if we temporarily went over the fiscal cliff.
I say that because I am seeing a smattering of articles recently suggesting that somehow going over the cliff "won't be all that bad" or that we're "really just talking about cuts that need to happen in the first place."
President Obama seems to think the same way judging by the fact that he's dug in his heels, telling the GOP there will be no fiscal cliff bargain that doesn't include tax hikes.
Now noted budget hawk Republican Senator Tom Coburn has broken ranks, noting that he'd rather see rates rise because that "will give us a greater chance to reform the tax code and broaden the base in the future."
I find that to be an absolutely appalling argument given how much further the president's proposals will squeeze the middle class.
As Fox Business Network's Gerri Willis, an expert on consumer and personal finance issues, recently pointed out to me, the average middle class tax rate is already 43.12%, according to the non-partisan Tax Foundation.
Beyond that, Willis says if we do go over the cliff, the average middle class tax burden jumps to nearly 50%.
I asked her how she came to that conclusion. I could only smile as she simply noted she'd "done the math," knowing full well that's one of the president's tax hike tag lines.
Unless Congress takes action, Willis observed, the average middle class federal rate jumps to 28% from 25% when the Bush-era cuts are allowed to expire. At the same time, payroll taxes will jump 15% from 13.3% to 15.3%.
Factor in state taxes, which average 4.82% nationwide, and that would take the total average middle class tax burden to 47.5%.
Keep in mind that doesn't include state income tax hikes, city or county taxes, many of which are on the rise no matter where you live thanks to decades of poor fiscal management.
Chances are, many middle-class earners living in states like California, Oregon, New York, New Jersey and Hawaii, for instance, will actually have substantially higher tax burdens that, practically speaking, are well in excess of 50%.
The Rocky Ground at the Bottom of the Fiscal Cliff
The real world stakes behind the debate are very high.
Case in point, the President's Council of Economic Advisors estimate that a rise in middle class taxes and the corresponding decrease in consumption would shave 1.4% off GDP, which is consistent with the signals being telegraphed from that other great oxymoron in DC, the Congressional Budget Office.
Even the president's team has estimated that consumers will spend nearly $200 billion less as a result of higher taxes alone.
Conversely, the latest GOP deal called for $800 billion in new revenue via tax reform while not increasing tax rates on the top 2% of taxpayers. It also involves limiting tax credits and capping deductions.
Naturally it was quickly rejected by the White House because it doesn't meet the "test of balance" according to White House communications director Dan Pfeiffer. House Minority Leader Nancy Pelosi, D-CA, was quick to jump on the bandwagon noting that the GOP's proposal is yet "another assault on the middle class, seniors, and our future."
Exactly -an assault on the middle class.
Willis believes "that taxes shouldn't go up on anybody right now. Growth is sluggish and anemic so the prospect of tax hikes don't make sense, especially on those the president purports to protect."
I agree. What you want to do is improve growth. Do that and you have improved employment.
That, in turn, takes more people "off the dole and leads to higher receipts," Willis added.
Half of Every Dollar Earned?
But how high should taxes go, and who's going to pay them?
For some reason, corporate taxes are strangely missing from the entire discussion.
According to the United States Office of Management and Budget (OMB), the 2013 fiscal year budget calls for $237 billion in corporate income tax revenue against individual income tax revenue of $1.165 trillion.
If you add in Social Security and other payroll taxes, individuals are on the hook for more than $2 trillion in taxes, or 81.25% of all revenues the government intends to collect.
Very few corporations actually pay the often demonized 35% U.S. corporate tax rate. In fact, the average U.S. corporation pays just 12%. Many don't even pay that.
Instead they use legions of lawyers and thousands of foreign subsidiaries to pay taxes only when they bring them home and repatriate their profits. Or, they stage a tax rebellion of sorts.
Willis believes that the White House doesn't grasp the fact this is already well under way as companies like Oracle, Costco, Wal-Mart and more than 200 others rush to pay dividends early with the express purpose of avoiding tens of millions of dollars in higher taxes that presumably lie ahead in 2013.
Adding insult to injuries the struggling middle class has already sustained, what these companies are doing is "all very quiet and perfectly legal," she observed.
If only the middle class had that option.
Let's just hope it's not half of every dollar earned.
I’m all for going over Barry’s “cliff” if it will get Barry’s 47% off their lazy asses and start paying their “fair share”. It’s time for the freeloaders to get “a little skin in the game”.
We’re going to get there eventually, let’s just go ahead and get it over with.
Howard Dean says the cliff damage will only last a short time. Everyone needs to pay more, according to Howard.
But it is inevitable. We will go over the cliff eventually, and it only gets worse if we delay. So let's jump. It's gonna hurt, but it's the right thing to do.
So most of this post is probably irrelevant.
Obama is already threatening to veto this tax cut bill of his own so Rs better call his bluff.
That was after taking a handful of pills.
The faster they drive this country to arms, the better.
Take it back, while there's still something left to take, and the means to do it.
“...So let’s jump. It’s gonna hurt, but it’s the right thing to do.”
Problem is that doing the right thing is not in vogue these days in government, especially inside the Beltway.
In fact it’s somewhat shameful to do anything other than act in their own immediate self-interest.
Yep, weeese in trouble plenty.
Isn't it interesting that the government forbids us from feeding the animals while we are in the woods because the animals might become dependent upon us? But outside of the woods, the government feels that it is OK to feed, house, clothe, and transport humans, on a long term basis, and doesn't give a damn if those humans are becoming dependent? Do they care more about the animals than they care about the humans???
Any voter’s remorse yet America? Probably not from the 47%... But I think this s*cks. Maybe i should just say eff it and drop out of the workforce too, become a burden on society...
Well, you can credit them for some honesty in the matter...because there is no answer. There's no way to quantify it without slipping in at least one "ought."
Not even lip service anymore. How soon before Middle Class Joe follows suit?
Re “So let’s jump”. Well, if you have the right parachute and related equipment, when we go over the cliff, you will land upright on your feet.
Let the Dems/Liberals and their uneducated masses hit hard.
Nothing like getting the crap beaten out of you to make you realize that you had better get armed (with knowledge) and wake up to reality.
Otherwise Darwin will be proven right.
Barry’s 47% are the unemployed, unemployable, and indolent.
Fairness and Justice are the catch phrases used by Progressives to commit theft; and betray the Constitution. Fairness and Justice are the words I recall from Comic Book Heros - Superman, The Green Hornet, Batman, and others, brought criminals to “Justice” to make the world “Fairer”.
Progressive Democrats use the word Justice to commit a crime.
Fairness is achieved when the Democrat concludes the theft and gives a portion of what is robbed to another who promises to vote for them.
Punishing the working class/tax payers enables the Democrat to rally the Indolents to despising the people whose income is taken for their benefit. The Indolent never says thank you, or appreciates what is given them. Their greed and envy is Justified - according to Progressives. Progressives consider any difference in income is Un-Fair - whether the income is earned or stolen.
Fairness — In this theory, is only achieved when all citizens have identical spending power - regardless. If the citizen lifts a finger to earn the money, or not, is irrelevant. In this theory, the tax payer is obligated to earn enough for two families - his own and the Indolent’s. Justice is done when the Producer/Tax Payer is robbed of his total income so his spending power is reduced to the Indolent’s, and, the Indolent’s income increases to match the Producer/Tax payer - in the name of Fairness