Tag Archives: Bush Tax Cuts

Fiscal Cliff deal: The good, bad, and ugly

Last night, Jan. 1, 2013, at 10:45 pm, the U.S. House of Representatives approved a deal to avert the fiscal cliff, by a final vote of 257 to 167.

The House vote came less than 24 hours after the Senate had overwhelmingly approved the bill 89 to 8, with both parties’ support. The bill now goes to the POS for his signature. Instead of signing the bill, he’s already left D.C. to resume his vacation in Honolulu which was so rudely interrupted by the fiscal cliff negotiations. [snark]

The Fiscal Cliff deal:

  • The top tax rate increases from 35% to 40% on annual income over $450,000 for married couples and $400,000 for single people. This is the first time in more than two decades that a broad tax increase has been approved with GOP support.
  • “Temporary” Bush tax cuts for couples making less than $450,000 and individuals making less than $400,000 per year are made “permanent” (which means “until Congress changes their mind”).
  • More than 100 million “middle class” families (those earning less than $250,000 a year) will be protected from significant income tax increases set to take effect this month, but their payroll taxes will rise with the expiration of a temporary tax cut adopted two years ago.
  • No estate taxes on inheritance of $5 million, or $10 million for married couples.
  • Federal dairy policies will be extended through September, averting a threatened doubling of milk prices.
  • Extension of unemployment benefits to 2 million people for another year.
  • Automatic cuts to the Pentagon and other agencies that had been set to take effect today will be delayed for two months.
  • Pay raise for members of Congress, which was effectuated by Obama’s executive order, is nixed.
  • Automatic spending cuts (sequestration) from last year’s debt ceiling deal are postponed until March 2013, which means — oh joy — there’ll be a Fiscal Cliff II next month!

The Bad:

Buried in the fine print of the 150-page deal are some New Year’s gifts to some of Washington’s favorite cronies. Under the plan, the federal government would eat nearly $100 billion in forgone tax revenue over the next two years by extending special tax credits for select businesses that had been set to expire:

  • $430 million for Hollywood through “special expensing rules” to encourage TV and film production in the United States. Producers can “expense” up to $15 million of costs for their projects. All this for a film industry that enjoyed a record box office last year.
  • $331 million for railroads by allowing short-line and regional operators to claim a tax credit up to 50% of the cost to maintain tracks that they own or lease.
  • $222 million for Puerto Rico and the Virgin Islands through returned excise taxes collected by the federal government on rum produced in the islands and imported to the mainland.
  • $70 million for NASCAR by extending a “7-year cost recovery period for certain motorsports racing track facilities.”
  • $59 million for algae growers through tax credits to encourage production of “cellulosic biofuel” at up to $1.01 per gallon.
  • $4 million for electric motorcycle makers by expanding an existing green-energy tax credit for buyers of plug-in vehicles to include electric motorbikes.

The Absurd:

  • This is how farcical the fiscal cliff brouhaha was: Members of the U.S. Senate had only 3 minutes to read the 154-page fiscal cliff bill and budget score, before they voted 89-8 to approve the bill. Senators received the bill at approximately 1:36 AM on Jan. 1, 2013 – a mere three minutes before they voted to approve it at 1:39 AM. I’ve taken longer to read the instructions for my new cell phone.
  • House Republicans also violated their pledge to allow three days for the public to read the legislation before they would vote on a bill. This was a promise the GOP made to voters before the 2010 elections.

The Ugly:

151 Republicans in the House voted “no,” which meant the GOP tally fell far short of a majority of the GOP caucus. That broke a long-standing preference by House Speaker John Boehner to advance only bills that could draw the support of a majority of his Republican members. So Boehner himself cast a rare vote: He supported the bill. So did Rep. Paul Ryan (Wis.), the GOP’s vice-presidential candidate last year.

40 House Republicans voted for the bill, including such GOP leaders on tax-and-spending policy as Sen. Patrick J. Toomey (Pa.) and Ronald H. Johnson (Wis.), a tea party star.

The Good:

  • Senate Republicans who voted against the bill include tea party favorites Rand Paul (Ky.) and Mike Lee (Utah), as well as Marco Rubio (Fla).
  • House Republicans who voted no include Majority Leader Eric Cantor (Va.) and Majority Whip Kevin McCarthy (Calif.).

The Really Bad:

Regardless of one’s political affiliation or beliefs, from an economic and fiscal perspective, the cliff deal has accomplished nothing. Here’s why:

  • The bill’s proposed spending cuts of $15 billion are less than 2% of the federal government’s deficit.
  • The bill’s tax increases will raise $620 billion over the next ten years — roughly $62 billion in new tax revenue per year.
  • $62 billion in new tax revenue per year is less than 6% of the $1+ trillion deficit the Obama regime has incurred every year for the past four years.
  • According to the nonpartisan Congressional Budget Office, the fiscal cliff bill will cause the national debt to be $4 trillion higher by 2022 than if all of the cliff’s tax increases and spending cuts had been allowed to take effect.

Sources: CNN, Washington Post, ABC News, CNS News.

~Eowyn

3 Biggest Tax Stories of 2011

Bill Bischoff, “the tax guy,” writes in Smart Money, Dec. 21, 2011, that ” there was only limited tax news this year, and we will probably not see any really big developments until after the 2012 election.” That being said, “there were two significant developments and one significant non-development” in terms of taxes in 2011. They are:

1. No Grand Tax Compromise:

When push came to shove, the Democrats and Republicans couldn’t even agree on where to go to lunch, much less on big changes in tax policy. So the deficit reduction problem was punted to a “super committee” which then failed to reach a consensus. As a result, automatic spending cuts are supposed to kick in to the tune of about $1.2 trillion (a number that looks increasingly inadequate) over 10 years. There are no automatic tax increases in the super committee deal, and none may be needed — because the so-called Bush tax cuts are scheduled to expire (again) at the end of 2012. If that is allowed to happen, massive tax increases will take effect in 2013.

2. Temporary Social Security Tax Cut:

For 2011 only, the withholding rate for the employee’s share of the Social Security tax was reduced from the usual 6.2% to only 4.2%. For self-employed individuals, the Social Security tax component of the self-employment tax was also reduced from the usual 12.4% to 10.4%. For 2011, the Social Security tax hit the first $106,800 of wages or self-employment income, so the maximum savings from the cut was $2,136 (2% x $106,800). A married couple can save as much as $4,272 (2% x $2,136). Anyone with wages and/or self-employment income benefits to some degree from this arrangement.

For 2012, there’s still a good chance the Social Security tax reduction will be extended and maybe even increased to 3%. But there will apparently be a lot of political gamesmanship before that happens. (For 2012, the Social Security tax will hit the first $110,100 of wages and/or self-employment income.)

3. New Estate and Gift Tax Regime Takes Effect:

  • For estates of individuals who died in 2011 or made gifts in 2011, there’s a $5 million unified federal estate and gift tax exemption.
  • For estates of individuals who die in 2012 or make gifts in 2012, there will be a $5.12 million unified exemption.
  • The estate and gift tax rates are both a flat 35%.
  • Married individuals who die in 2011 or 2012 can pass along their unused federal estate and gift tax exemptions to their surviving spouses.
  • Heirs of decedents who die in 2011 and beyond, won’t owe any federal capital gains taxes on appreciation that occurs through the date of death — as long as that date is in 2011 or later.
  • All but one of these beneficial changes will expire at the end of 2012 unless Congress takes further action. The unified gift and estate tax exemption will fall back to a paltry $1 million, the maximum estate and tax rate will go up to a punitive 55%, and the portable exemption deal will die. The only taxpayer-friendly provision that will survive is the basis step-up rule for inherited capital gain assets (it’s permanent, until Congress changes its mind).

~Eowyn

 

Reminder for Liberals: Why the Government Almost Shut Down

Inasmuch as those on the left are hyperventilating over the possibility that the federal government might “shut down” soon, it’s become obvious that they have the attention span of a five year old.

Fiscal budgets aren’t supposed to come due in February. The normal process is that lawmakers debut a budget proposal in the spring and Congress approves something in the summe for the real start of the fiscal year – in October.

Except that in 2010 it didn’t happen. Nancy Pelosi’s House of Representatives refused to pass a budget last summer. The excuse was that one of Obama’s sundry advisory panels would release a deficit report in December, and it was “not possible” to pass a budget before that report.

What happened when the panel’s report came in? By that time Pelosi and the Democrats had lost Congress and didn’t care anymore.

Think as hard as you can and remember what was going on in the news all the way back 60 days ago. Those Bush-era tax cuts were approved at the last minute because Congress was trying to do something about a 2010 budget. The eventual agreement was a temporary extension of the status quo.

And here we are in February, the temporary extension is all used up, and Congress is still fighting over what to do.

Nancy Pelosi deserves every word of that gushing resolution in her honor.

-Candance