The legislation averting the fiscal cliff raises the top income tax rate from 35 percent to 39.6 percent. The Wall Street Journal reports that with the phase out of certain deductions for high income earners, the top rate for 2013 is more like 41 percent.
The Journal adds in the rest of the tax liabilities: “Add the ObamaCare surtaxes on investment income (3.8%) and Medicare (0.9%), as well as the current Medicare tax of 1.45 % (employee share), and the top marginal tax rate on a dollar of investment income from a bank savings account or money-market account will be about 46 percent.”
President Obama has said repeatedly that higher income Americans should pay more taxes. The higher tax rate in the fiscal cliff plan will take an estimated $620 billion out of the private sector over the next ten years and turn it over to the federal government.
Unfurl the “Mission Accomplished” banner at the White House.
The higher tax rate achieves a campaign promise made by the President, and supported by most Democrats, but other than that, what does it really do?
There is no guarantee the additional revenue will go toward deficit reduction, and even if it did, $620 billion falls well short of covering the annual deficit (about $1 trillion a year) and fails to make a dent in debt, which is at $16.4 trillion and growing.
In fact, the fiscal cliff plan includes over $300 billion in new spending over the next decade.
Only in Washington can negotiations over ways to reduce the deficit end with a 200-plus page bill that actually spends more money and adds to the debt. Perhaps this exercise, more than any other, explains why the federal government has bankrupted the country.
Former Republican Senator Alan Simpson and Democrat Erskine Bowles, authors of the bipartisan report on debt reduction, say the fiscal cliff compromise represents a missed opportunity to address the nation’s fiscal woes.
“Washington missed this magic moment to do something big to reduce the deficit, reform our tax code and fix our entitlement programs,” they said in a joint statement.
Imagine that: Washington is absent on a tough decision.
Republicans and budget-conscious Democrats are quick to say the real showdown is coming in two months when Congress must decide whether to raise the debt ceiling. President Obama has already thrown down the gauntlet, saying he will not negotiate on that issue.
“If Congress refuses to give the United States government the ability to pay these bills on time (read: go farther into debt), the consequences for the entire global economy would be catastrophic—far worse than the impact of the fiscal cliff,” the President fumed.
That’s not leadership; it’s the Commander-in-Chief misstating the argument and shifting the blame.
The beginning of another year should brim with optimism. We are forward looking people. We try to focus on the horizon and consider the possibilities.
But what reason is there for confidence? The temporary exhilaration of the class warriors who want the rich to “pay their fair share” will give way to the reality the rest of us already know: the country is headed toward fiscal ruin and Washington can’t or won’t do anything about it.