Of cliffs and cans and taxes

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By Tracy Warner
Editorial Page Editor

Friday, December 28, 2012

Brace for a big dose of tax nostalgia. When we fly off the fiscal cliff Tuesday (unless the optimists prove correct, and the obstinate suddenly become dealmakers), we may have to rethink our metaphors. Are we really plunging into the economic abyss, or just stepping into Mr. Peabody’s Wayback Machine? As they say in Washington, nothing up my sleeve.

All the bickering in the Capitol this weekend is about how to avoid the automatic calamity of going back to the way taxes used to be, long ago in the Bush II administration. The political terror will occur when Americans are suddenly and starkly reminded how much money the government has not been taking from them. It’s a lot. A “big deal” is how one Washington think tank put it, being prone to technical jargon.

Here’s what will happen next week, barring a miracle plague of common sense among our political representatives: All the many tax cuts passed since 2001 will expire, including the Bush-era income tax cuts and the Obama-era payroll tax “holiday.” In addition, $100 billion in across-the-board spending cuts, called “the sequestration” will hit Jan. 2, and that includes defense. Doing this horrible stuff all at once, when the economy is weak, is what brought the off-the-cliff metaphor. Remember, it was part of a deal hatched by the so-called supercommittee that was supposed to cut a deal to trim budget deficits, but couldn’t. The consequences of this uncutting and budget busting was supposed to be so universally appalling that lawmakers would do anything to see it didn’t happen. Apparently, it isn’t horrible enough. If there’s no deal, Democrats will console themselves with polls showing we all blame the Republicans. Republicans will think that ... well, I’m not sure Republicans do much thinking, but if they do, it might be something like, we showed ’em, we didn’t vote for a tax hike.

And because of the artful blamers and not-ever types, your taxes will be hiked, a lot. Or, if you prefer, they will be restored.

How much? About $500 billion in 2013 alone, according to the Tax Policy Center. That’s a 20-percent rise in federal revenue. For the average family, people like you and me, it will be nearly a $2,000 hit. First, all the income tax rates will rise — 25 percent to 28, 28 to to 31, 33 to 36, etc. A lot of moderately well off people will be thrust into the Alternative Minimum Tax, which they had been pushed out of with a “patch.” Child tax credits will be cut in half. Taxes on capital gains and dividends will rise. Estate taxes will spike, etc.

This won’t be just for rich people. Regardless of any budget deal, the payroll tax cut we’ve enjoyed these many months is due to expire and no one seems excited about renewing it, for it funds Social Security and other important things. So the 2-percentage point cut is coming back, and that will come right out of your paycheck. For the average worker it will be about $80 a month. In addition, extended unemployment benefits may not be extended again. Even those without jobs will join us at cliffside.

Economists do not see this as good. Being so suddenly unstimulated, all those hundreds of billions out of circulation, family budgets battered, less money to spend, less money to buy and invest, it will all have an effect on an economy already weak as a kitten. There’s a metaphor for you. We’re giving up kicking the can down the road to throw a kitten off a cliff.

People on the right are already suggesting that greedy Democrats really want this to happen, because they want your money. People on the left are saying that Republicans are paralyzed by their anti-tax fanatics.

If it happens, blame whomever you want. Then next year, take a look at your pay stub. Set it for 2001, Sherman.

Tracy Warner’s column appears Thursdays and Fridays. He can be reached at warner@wenatcheeworld.com or 665-1163.

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dougmorgan 4 months, 3 weeks ago

Why are you, and others, vilifying the Republicans because they are against taxes? I remember when the Democrats were trying to get elected when they said Republicans wanted to raise taxes. And so it goes.

lonedog3 4 months, 3 weeks ago

If the Obama clan had not run our national deficit up three possibility four times the amount it was in the last four years there wouldn't be such a major fight with how high of taxes to levy upon the citizens! The proof is in the pudding so to speak with how many trillions of dollars this administration has increased the national deficit! Even this silly little gossip rag has reported on that monstrosity! How can anyone cast fault with people fighting to keep taxes low enough so people can buy food and shelter for their families?

cousinsam 4 months, 3 weeks ago

To find out who is ultimately responsible, just look in a mirror. We the people elected our president and our congress, mostly based on faulty information or impressions, rather than on reason and principle.

JimboBear 4 months, 3 weeks ago

"Republicans will think that ... well, I’m not sure Republicans do much thinking, but if they do, it might be something like, we showed ’em, we didn’t vote for a tax hike."

C'mon Tracy Warner. Just a few days ago I praised you for stating things the way they are and not trying to hide the stench with air freshener. Now today, you make a statement such as the quote above. I'm not at all sure that anyone in your audience is the least bit interested in your political beliefs, but since this is an "editorial opinion" piece, am I to assume that the entire editorial staff of the Wenatchee World is passing the same cup of Hemlock laced punch among themselves?

Without even hearing about your regard for the Republicans and the right in general, anyone with half a brain can see that the Republicans will be blamed. Mr. Obama's entire campaign and the thrust of his supporters was based on bashing the Republicans and spreading half truths about the Democrats, and it won him his recent re-election. Doesn't it stand to reason that those who were either uninformed or foolish enough to believe him then will believe him again on January 2, 2013?

Dudleydoright 4 months, 3 weeks ago

Cous, I didn't vote for either of our senators nor the prez so no, it isn't my fault.

lonedog3 4 months, 3 weeks ago

not my fault either!

grbadave 4 months, 3 weeks ago

The Bush tax cuts were by definition temporary. This is because when the legislation was passed in 2001 and 2003 it was scored by the CBO and found to blow a huge hole in the budget and add to the national debt. Back in the day when there still were a few brave moderates in the GOP, people like McCain, who was different back then, actually opposed these plans initially, because it was "fiscally irresponsible". Not to mention we were at war and spending money like a drunken sailor, which, by US historical norms, were circumstances when taxes were typically raised. The GOP couldn't make these cuts permanent becuase in order to overcome significant opposition amongst most Democrats, they used arcane Senate procedural rules to prevent fillibuster, but by these same rules they could only make the tax cuts extend up to 10 years. Again, that had to do with the way they were projected to, and indeed, we now can say in fact did, create annual deficits and increase the nat't debt in a huge way. Some people said this was a bad idea at the time. Few listened. We get the gov't we deserve. Let's not get fooled again folks. We needa gov't that does more than deliver mail and buy cannon balls, and we need to be willing to pay for it. If we go back to the pre-2001 tax laws it will come as a shock, but we've been living on borrowed money, and even under Clinton US taxes were among the lowest in the devevloped world.

Taxguru 4 months, 3 weeks ago

All the above is Total CRAPOLA....!!!

From a 2006 article on the success of the 2003 tax cuts:

the Congressional Budget Office recently confirmed that President Bush’s 2003 tax-cut package has been wildly successful. Federal revenues rose $206 billion (13%) during the first nine months of this fiscal year. This follows last year’s record surge in revenues, when Uncle Sam’s coffers grew by $274 billion (15%). Not surprisingly, the White House lowered its projection of the current year’s budget deficit by more than $100 billion.

But free market economists such as my colleague Dan Mitchell were unfazed. "The supply-side tax cuts of 2003,” he told the Washington Post, “are working exactly as we would have expected. Lower taxes on work, saving and investment leads to more work, saving and investment. It’s not exactly rocket science."

The fruits of this additional work, savings and investment are evident. In the two years preceding the cuts, economic growth averaged a paltry 1 percent and too many job-seeking Americans (6 percent) were unemployed. Since then, we have experienced three years of solid 4% growth, 5.4 million new jobs have been created, and the unemployment rate hasn’t budged from its historic low of 4.6%. This growing economy may prove to be Bush’s most impressive domestic policy achievement.

bushman66 4 months, 3 weeks ago

Bingo, grbadave. & the econonmy crashed in '07, rendering the '06 article abit premature in its praise.

lonedog3 4 months, 3 weeks ago

the only ones "pulling wool over any eyes" is the left! if people would actually take the time to research the actions of congress for the last 12 years they would see exactly who brought us this mess and who continues to bring us and keep us on the edge of financial bankruptcy.

bushman66 4 months, 3 weeks ago

Last 12 yrs. 2000= Dem Pres, Repub Congress; 2001 thru 2006= Repub Pres, Repub Congress; 2007 & '08= Repub Pres, Dem Congress; 2009 & '10= Dem Pres, Dem Congress; 2011 & '12= Dem Pres, Repub House, Dem Senate. Tax cuts, 2 unfunded wars, unfunded Part D during 2001 to 2004. Is that the "wool" you're referring to?

Taxguru 4 months, 3 weeks ago

" the econonmy crashed in '07, rendering the '06 article abit premature in its praise. "

HILARIOUS....!!!!

Yeah, higher economic growth, increased Tax Revenue, and Full Employment caused the economy to crash......Too funny, Liberal logic at it's finest..!!!

Peggy 4 months, 3 weeks ago

Please tell us when we had this full employment again. I've been on earth for over 65 years and I don't remember when we ever had everyone who could work actually working. We must live in totally different countries.

Taxguru 4 months, 3 weeks ago

Definition of full employment:

full employment, as defined in economics, is an unemployment rate of 5% or lower…..

bushman66 4 months, 3 weeks ago

Well, your "higher economic growth, increased tax revenue & full employment" went away in '07 under the same administration who started the downhill run. When 2 unfunded wars are started coupled w/2 unfunded tax breaks it has a tendency to move things (economically) in the wrong direction. Nobody prior to that had cut taxes AND gone to war at the same time. That may have had someting to do w/ushering in the recession.

Taxguru 4 months, 3 weeks ago

" Well, your "higher economic growth, increased tax revenue & full employment" went away in '07 "

2007 ??? Really...????

It was at this point that economic growth took off. From May 2003 until December 2007 (when the recession caused by the global financial meltdown occurred) the economy created 8.1 million jobs, or 145,000 a month. By comparison, after the beginning of the 2001 recession and before the 2003 tax cuts, the economy was losing 103,000 jobs a month.

From 2003 to 2007, the number of tax filers rose by 9.6 percent, and taxable income, by 44 percent. By contrast, in the last four years of the previous expansion, from 1997 to 2001, these numbers grew by 6.4 percent and 23.6 percent, respectively.[9] With income and taxpayers growing at such a fast clip it is not hard to see why tax revenue did not suffer from the tax cuts.

Taxguru 4 months, 3 weeks ago

2007 Federal Tax Revenue - $2.568 Trillion.

The highest amount of tax revenue ever collected.

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200

bushman66 4 months, 3 weeks ago

O.K., if you think the US economy "took off" in '07, there's not much room for discussion. The economy was not healthy in '07 & '08 - there had to be a reason for that. Of course, our economic policy/plan had nothing to do w/that, I guess. When repubs control things all's well (except when it isn't). You're right - it's all the dems fault. What do you think will straighten out the US economy?

FootballNut 4 months, 3 weeks ago

Repealing the income tax, social security tax and the Medicare tax and replacing it with "The Fair Tax". That would be a great start to get the economy turned around. Check it out:

www.fairtax.org

lonedog3 4 months, 3 weeks ago

a flat tax on ALL income would no doubt be the best and fairest to all citizens. But, all of the secret offshore accounts the rich use would have to be shut down as well.

FootballNut 4 months, 3 weeks ago

That's why the fair tax would be better. Everybody pays it at the retail point of sale only. Even drug dealers, pimps and hookers will pay it. No more income tax returns, no more payroll tax, no more federal income tax withholding or medicare tax. You get your entire paycheck.