The fiscal cliff deal that passed the Senate last night is appalling.
It raises marginal tax rates at the top (allegedly to “Clinton era levels” but actually higher once you account for the phaseouts of personal exemptions and itemized deductions), but not for anyone else, nibbling away at the rewards for productivity, and placing an ever-greater share of the tax burden on an ever-smaller fraction of the population.
Edited to add: Greg Mankiw has pointed out to me that the phaseouts were present in the Clinton years as well, so my remark about today’s rates being “higher once you account for the phaseouts” is wrong. On the other hand, as Greg also points out, with the increase in Medicare taxes pursuant to Obamacare, total tax rates are in fact higher than they were under Clinton. Greg points to this link for clarification.
Worse yet, it increases the rates on dividends, capital gains and inheritances, encouraging wealthy people to save less, consume more, and demand a greater share of the world’s resources.
The AMT, one of the few bright spots in the tax code, is permanently “fixed”, which is to say that almost nobody will pay it now.
This deal does absolutely nothing to control entitlement spending, which means it’s 100% fiscally irresponsible. Let’s be clear about this. When you’re overspending, the fiscally responsible thing is to spend less, not to cover the difference by visiting the ATM and depleting your assets. Wealthy taxpayers are the government’s ATM; the assets the government takes today won’t be there when they need more tomorrow. Let’s say it one more time: After all the talk about “fiscal responsibility”, there is nothing fiscally responsible about this deal.
Unemployment insurance for the long-term (i.e. greater than 26 weeks) unemployed is extended for another year, once again nibbling away at the income gap between those who produce and those who don’t.
And oh, yes….there’s an extension of tax loopholes for the President’s buddies in the “clean energy” business.
There is, as far as I can see, nothing — let me repeat that, nothing to like about this agreement. As Greg Mankiw points out, it’s a package that rejects entitlement reform, rejects tax reform, and rejects every major recommendation of the bipartisan policy wonks who made up the Simpson-Bowles commission and that most policy intellectuals agree on. I hope it tanks in the House. I’m not optimistic.