Streams

Latest on the Fiscal Cliff

Tuesday, December 18, 2012

John Boehner House Speaker John Boehner (Getty)

Heidi Moore, finance and economics editor at The Guardian, and Rachel Smolkin, Politico White House editor, talk about the latest moves by Republicans and Democrats as they attempt to avoid the fiscal cliff.

Guests:

Rachel Smolkin

The Morning Brief

Enter your email address and we’ll send you our top 5 stories every day, plus breaking news and weather.

Comments [18]

re Carl:

Agreed! They should also in this 'Balanced Approach' talk address where the starting line should be. The Bush Tax cuts never paid for themselves and are part of the reason we're in this mess. If 10 years ago the public was told: "We want to give everyone a tax cut, and a real big one to the top earners...and we'll pay for it by cutting Social Security and Medicare...in 10 years", I think that would've been a very different sales pitch. Yet it's effectively what happened. (And this was at a time the public wanted to be taxed more to pay for the war on terrorism). Maybe it's time for Greenspan to come out and say "I was wrong" again...

Dec. 18 2012 01:24 PM

re RUCB_Alum:

You need to get yourself a new accountant, or at least stop listening to talk radio. For the $100k 'self employed' earner, (we'll presume the S.S. goes back up to the full amount, and the filer is single and childless for minimum deductions):
15.3% (S.S. + Medicare) = 15,300
Standard Deduction ($5,950)
Exemptions ($3,800)
Taxable Income = $100,000 - $5,950 - $3,800 = $90,250
Federal Income Tax = $20,630
Total Effective Tax [sent to Washington] = $35,930

So in this 'worst case' scenario you're actually sending 36 cents on the dollar, not 46 cents. (And this is presuming that Congress does the unconscionable thing of holding all the tax cuts hostage to the top end rate. If the tax rates stay as is for income under $250k, than this individual would pay $18,894 in federal income tax and the total sent to Washington would be just under 34 cents per dollar).

Now of course, this is the WORST case, where you're just using the standard deductions and not benefitting from itemizing things like state income tax and home mortgage interest; you don't have additional deductions from a spouse or children; you're paying the full S.S. and Medicare tax (b/c we presumed you were self-employed for the worst case); and you're not contributing anything to a tax deductible retirement plan.
Just maximizing your contribution to the widely used 401 or 403 plan would lower your 'tax sent to Washington' to under 30 cents on the dollar - (of course our self employed example could contribute even more to a SEP or Keogh plan and lower their tax bill further).

We may also want to remember in the above example that the S.S. tax is something you're meant to be getting back in retirement, so may actually be more akin to a forced saving plan, but that's another conversation.

Dec. 18 2012 01:07 PM

re Caitlin:

You are correct. The higher rate is only on the OVER the cutoff number, so you're only taxed on the income OVER that number. The Dems do a lousy job conveying this, and the Talk Radio hosts do a great job conveying misleading info to the contrary. This affects small businesses even less than most realize, as less and less are in this tax range as you go up the income scale. What you find at the higher-end of this small business continuum is a large number of pass-thru entities for doctors, lawyers, accountants, etc etc. Very few of them are going to start working less because they pay an additional $4,600 per $100k, and very few are going to run out and hire employees b/c they get a tax cut. (Good business people wouldn't hire b/c of a tax cut, they'd pocket the money...you hire when increased demand from your customers warrents additional help).

Dec. 18 2012 12:06 PM
Carl from NJ from New Jersey

How can the republicans continue to say that Revenue increases cannot be more than spending cuts? A 'Balanced' approach does not mean that things have to be equal.
Instead of reducing the monthly amounts that seniors get to survive, they should put in an "alternate minimum tax' on corporations -- it is disgraceful that some of America's largest corporations can eliminate all taxes.

Dec. 18 2012 12:05 PM
scott from soho

Every tax bracket will be paying much higher taxes within a year. They are starting with the wealthy and will soon follow with another "pay your fair share" plea for the middle class.

Dec. 18 2012 11:47 AM

Exactly, Caitlin, these are marginal rates and they apply to everyone. So the 'tax the rich' battlecry (right and left) is somewhat misleading.

The middle (those earning up to about $110K) are ALSO paying FICA withholding - about 15.3% of earnings, half from their own paychecks, half paid by their employer. The self-employed pay both halves. Thus, if all the Bush cuts expire, an $100K earner would send an astounding 46 cents of the next dollar earned to Washington.

Dec. 18 2012 11:47 AM

ALL economists except the right-wingers like Glenn Hubbard (who advised Romney) agree that inflation seen by seniors is higher than that seen by the average American.

Moreover, IF Social Security is tied to the chained CPI, then the losses in services to beneficiaries is _cumulative_. It might be a 0.5% difference in 2 years. But in 10 years that would be more like a 10% reduction. And it rises from there.

For seniors in a city like New York where housing costs rise at a rate far, far greater than national inflation, the change would be devastating.

Dec. 18 2012 11:47 AM
Amy from Manhattan

Why are they even making Social Security part of the discussion? Social Security is solvent. If anything needs to be done about Social Security, it's taking the cap off the payroll tax that funds it. Millionaires & billionaires pay no more into it than people making $110,000 a year--not just the same rate, the same *amount*. Yet when they reach retirement age, they collect at rates based on how much they made in salaries, far more than they ever put in. Why isn't this more of an issue?

Dec. 18 2012 11:46 AM
kim motter from nyc

Heidi Moore states that solving the fiscal cliff by Jan. 1 will save unemployment coverage for 2 million. Unemployment recipients in NYS beyond the 26-week basic coverage have already been cut off for unemployment payments as of 12/9. There is little or no coverage about the fate of those beyond the 26-week unemployment coverage if we go over the cliff.

Dec. 18 2012 11:45 AM
Robert from NYC

This year the COLA on SS is 1.7%, YES 1.7% so you think that should be lowered. SS historically usually got 2% COLA (cost of living adjustment) do you think THAT'S sufficient for living? About 3 years ago there was a 4% COLA and that was because the previous two years there was not COLA increase NONE, NADA, NIENTE, NICHTS!!! Bit fkng deal. And Obama wants to lower this!!!!!!!?

Dec. 18 2012 11:43 AM
Smokey from LES

Why not go over the fiscal bluff and then first thing in January, Republicans can vote to cut taxes on those under $250K? What Republicans could object to voting for that tax cut?

Dec. 18 2012 11:40 AM
Caitlin

What percentage of people who make over a million dollars a year get their income from their salary, rather than investments? Would this make much of a difference, or would most of it be capital gains?

As I understand it, this is a marginal tax rate, meaning the higher rate applies to the money made OVER the limit (400k, 1 mil, whatever), rather than if you make a dollar over the limit the higher rate applies to your total income. Is this correct?

Dec. 18 2012 11:40 AM

The big news about the prospective deal is not the increase to a $400,000 threshold for increased taxes. It's the boondoggle of ramming the chained CPI down the throats of Americans. The evidence is overwhelming that seniors see _higher_ inflation, not lower — in no small measure because of medical expenses.

A cut in services on Social Security and Medicare is effectively a tax increase: Less Service + Same Tax = Effective Tax Increase.

What a surprise. No president, no member of Congress, no A-list reporter will every have to worry about living off Social Security. Obama shows nearly the same level of hostility to the middle class that Republicans do.

Dec. 18 2012 11:39 AM
Robert from NYC

Although the chances of it happening are very low, I still find it very very scary that this fool John Bonehead, can become the president. He is truly and idiot who proves that every time he comes to the podium to talk. He knows nothing except how to serve and possibly service (even if figuratively) his donors on wall street. He is pure emptiness.

Dec. 18 2012 11:39 AM
The Truth from Becky

"the President is not there yet" - who do you think you are talking to? Why does boehner think he is running this thing? I for one am willing to go over the cliff = DO NOT give in to them Mr. President!

Dec. 18 2012 11:37 AM

re RUCB_ALUM:

Unfortunately withdrawing from government spending too soon would probably cause a the 'meh' recovery to turn back into a recession. You have to remember that that government spending ultimately gets spent, and therefore contributes to GDP. We've been juicing GDP for years by outright spending and spending on tax cuts, (considered a 'tax expenditure' in official spending talk), both financed by borrowing.

The tax cuts of 2001/2003 were paid for with long run borrowing, but getting rid of them on the bottom would affect spending and likely slow growth, which is why it's unpalatable for either party to get rid of. The answer is probably some tax increases [on the top for now] paired with locking spending at current levels. If businesses knew this was policy and that there wasn't going to be another manufactured disaster right around the corner, (like the debt ceiling), we could start growing our way out of this mess and the deficit would take care of itself.

Dec. 18 2012 11:21 AM
RUCB_ALUM from Central New Jersey

After hearing that Obama is willing to move the starting point up from $250K to $400K, it struck me that we would close the deficit faster and therefore be better off sooner by collecting something additional from everyone - even if the additional amounts were 'token' amounts - .01 or .02 of one percent - for those incomes below 'rich'. The plan that Obama is willing to accept is going to prolong the 'meh' of our recovery and, therefore, give more impetus of tossing out the Democrats in 2016.

Maybe it is smarter to begin the withdrawal from too much government spending more forcefully. What to do? What to do?

Dec. 18 2012 11:06 AM

Is there really a difference between "Fiscal Cliff" and "Actual Deadline?"

It sounds sort of like a term made up by Congress to give their inaction a fake sense of locomotion.

Dec. 18 2012 10:02 AM

Leave a Comment

Email addresses are required but never displayed.