November 7, 2012 – President Obama Wins Reelection: Yesterday President Obama won reelection, as I forecast in an early morning post before the election and on October 21st. Now the “fiscal cliff” looms large and could derail the meager recover and plunge this nation into, at best a recession and at worst a depression.
That cliff — which starts to take effect in January — includes $7 trillion worth of tax increases and spending cuts over a decade or $700 Billion per year.
Among the policies at issue are reductions in defense and non-defense spending, the expiration of the Bush tax cuts, the end of a payroll tax holiday and extended unemployment benefits, and the onset of reimbursement cuts to Medicare doctors.
Lawmakers must choose whether to leave in place some or all of them, replace them, postpone them or cancel them entirely. The decision will affect the economy, the country’s credit rating and the U.S. debt burden.
If left in place, the fiscal cliff would lead to the biggest single-year drop in the annual deficit as a percent of the economy since 1969.
But because it would be so abrupt and arbitrary, it also could throw the United States back into a recession next year, when more than $500 billion will be taken out of the economy.
American households face an average tax increase of $3,500 if Congress doesn’t act to avert the fiscal cliff, according to a new analysis from the Tax Policy Center.
Overall, 88% of households would end up with higher taxes.
That’s because a record number of tax increases — due mostly to the expiration of temporary provisions put in place since 2001 — are set to take effect starting in January.
All told, the center estimates that the fiscal cliff tax provisions would raise an additional $536 billion in revenue next year, or 21% of what the federal government would otherwise collect.
The range of average tax increases is enormous depending on one’s income level. (See graphic above by income level).
The top 1% of households, which have incomes above $506,210, would face an increase of $121,000. Within that group, the top 0.1% — those making more than $2.66 million — would get hit with a tax hike of nearly $634,000.
Few think, however, that Congress will let all the scheduled tax increases take effect. The current betting says lawmakers will let the temporary payroll tax cut expire but leave the majority of the Bush tax cuts in place and reinstate another so-called “fix” to the Alternative Minimum Tax so that it doesn’t ensnare more than 20 million households this year and next. Political observers also expect the new health reform taxes will take effect as scheduled.
But at the moment no one can say with any certainty what kind of fiscal cliff deal lawmakers will negotiate. (Credits: Narrative and Graphics – CNNMoney.com).
The Master of Disaster