Best of the Week
Most Popular
1.U.S. Inner City Turmoil and Other Crises: Ron Pauls Predictions for 2015 - Dr_Ron_Paul
2. What’s In Store For Gold Price in 2015? - Ben Kramer-Miller
3.Crude Oil Price Ten Year Forecast to 2025: Importers Set to Receive a $600 Billion Refund - Andrew_Butter
4.Je ne suis pas Charlie - I am not Charlie - Nadeem_Walayat
5.The New Normal for Oil? - Marin_Katusa
6.Will Collapse in Oil Price Cause a Stock Market Crash? - OilPrice.com
7.UK CPI Inflation Smoke and Mirrors Deflation Warning, Inflation Mega-trend is Exponential - Nadeem_Walayat
8.Winter Storms Snow and Wind Tree Damage Dangers, DIY Pruning - Nadeem_Walayat
9.Oil Price Crash and SNP Independent Scotland Economic Collapse Bankruptcy - Nadeem_Walayat
10.U.S. Housing Market Bubble 2.0 Meet the Pin - James_Quinn
Last 5 days
Kaminak Yukon Gold - 30th Jan 15
U.S. Asset Price Deflation Coming Up? Food Prices Drop? CPI Negative? Credit Deflation? - 30th Jan 15
An Often Overlooked Predator: State Governments and Income Taxes - 30th Jan 15
Bullard Says Rates at Zero Interest Rates Not Right for U.S. Economy - 30th Jan 15
Why the European Central Bank's Massive Economic Experiment Will Fail - 30th Jan 15
Gold Price Short-Term Bottom Due, Higher into February - 30th Jan 15
Silver and Other Precious Metals To Manipulate - 30th Jan 15
Socialism Is Like a Nude Beach - Sounds Like a Great Idea Until You Get There - 30th Jan 15
To Create Unlimited Market Liquidity or Not; That Is the Question - 30th Jan 15
Seen the Energy Downturn Movie Before, and Not Worried - 30th Jan 15
It’s Not Time to Sell Everything – Yet - 30th Jan 15
13 Investment Themes for 2015 - 29th Jan 15
The Raging Currency Wars Across Europe - 29th Jan 15
The End of Currency 'Safe-Havens' - 29th Jan 15
Ron Paul on U.S. Fed, Central Bankers Monetary Psychopaths - 29th Jan 15
Why Microsoft Stock Will Provide Major Investing Returns - 29th Jan 15
Exploring the Clash Within Civilizations - Mind the Gap - 29th Jan 15
Saudi Arabia Changes Kings, But Not its Oil Policy - 29th Jan 15
Crude Oil Price Bulls vs. Resistance Zone - 28th Jan 15
Acceleration Of Events With Rising Chaos – US Dollar Death Foretold - 28th Jan 15
The Fed and ECB Take the West back to when the Rich Owned Everything - 28th Jan 15
Washington's War on Russia - 28th Jan 15
Cyber War Poses Risks To Banks and Deposits - 28th Jan 15
Lies And Deception In Ukraine's Energy Sector - 28th Jan 15
EUR, AUD, GBP USD – Invalidation of Breakdown - 28th Jan 15
“Backup-Camera Envy” Is Driving This Unstoppaple Investment Trend - 28th Jan 15
The Great "inflated" Expectations for Gold, Oil, Commodities -- and Now Stocks - 28th Jan 15
How to Find the Best Offshore Banks - 28th Jan 15
There’s More to the Gold Price Rally Than European Market Fears - 28th Jan 15
Bitcoin Price Tense Days Ahead - 27th Jan 15
The Most Overlooked “Buy” Signal in the Stock Market - 27th Jan 15
Gold's Time Has Come - 27th Jan 15
France America And Religious Terror War - 27th Jan 15
The New Drivers of Europe's Geopolitics - 27th Jan 15
Gold And Silver - Around The FX World In Charts - 27th Jan 15
It’s Not The Greeks Who Failed, It’s The EU - 27th Jan 15
Gold and Silver Stocks Investing Basics - 27th Jan 15
Stock Market Test of Strength - 26th Jan 15
Is the Gold Price Rally Over? - 26th Jan 15
ECB QE Action - Canary’s Alive & Well - 26th Jan 15
Possible Stock Market Pop-n-drop in Store For SPX - 26th Jan 15
Risk of New Debt Crisis After Syriza Victory In Greece - 26th Jan 15
How Eurozone QE Works: A Guide to Draghi's News - 26th Jan 15
Comprehensive Silver Price Chart Analysis - 26th Jan 15
Stock Market More Retracement Expected - 26th Jan 15
Decoding the Gold COTs: Myth vs Reality - 26th Jan 15
Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch - 26th Jan 15
Draghi's "No-growth" QE Money for Stocks, Zilch for the Economy - 25th Jan 15
Unjust and Undeclared Wars - 25th Jan 15
The European Central Bank Commits Monetary Suicide - 25th Jan 15
Stock Market ECB EQE week - 25th Jan 15
Gold And Silver Timing Is Most Important Element - 25th Jan 15
The Best Way to Invest in the Next Alibaba Internet Stock IPO - 25th Jan 15
The Outpatient Surgery Business Rains Cash into Healthcare Stocks - 25th Jan 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Learn to Trade

Fiscal Cliff Means 50% Tax Rates for the Middle Class

Politics / Taxes Dec 07, 2012 - 08:12 AM GMT

By: Money_Morning

Politics

Keith Fitz-Gerald writes: If I didn't know any better, I'd think there's a small but growing group of people in Washington who think it would actually be good if we temporarily went over the fiscal cliff.

I say that because I am seeing a smattering of articles recently suggesting that somehow going over the cliff "won't be all that bad" or that we're "really just talking about cuts that need to happen in the first place."


President Obama seems to think the same way judging by the fact that he's dug in his heels, telling the GOP there will be no fiscal cliff bargain that doesn't include tax hikes.

Now noted budget hawk Republican Senator Tom Coburn has broken ranks, noting that he'd rather see rates rise because that "will give us a greater chance to reform the tax code and broaden the base in the future."

I find that to be an absolutely appalling argument given how much further the president's proposals will squeeze the middle class.

As Fox Business Network's Gerri Willis, an expert on consumer and personal finance issues, recently pointed out to me, the average middle class tax rate is already 43.12%, according to the non-partisan Tax Foundation.

Beyond that, Willis says if we do go over the cliff, the average middle class tax burden jumps to nearly 50%.

I asked her how she came to that conclusion. I could only smile as she simply noted she'd "done the math," knowing full well that's one of the president's tax hike tag lines.

Unless Congress takes action, Willis observed, the average middle class federal rate jumps to 28% from 25% when the Bush-era cuts are allowed to expire. At the same time, payroll taxes will jump 15% from 13.3% to 15.3%.

Factor in state taxes, which average 4.82% nationwide, and that would take the total average middle class tax burden to 47.5%.

Keep in mind that doesn't include state income tax hikes, city or county taxes, many of which are on the rise no matter where you live thanks to decades of poor fiscal management.

Chances are, many middle-class earners living in states like California, Oregon, New York, New Jersey and Hawaii, for instance, will actually have substantially higher tax burdens that, practically speaking, are well in excess of 50%.

The Rocky Ground at the Bottom of the Fiscal Cliff
The real world stakes behind the debate are very high.

Case in point, the President's Council of Economic Advisors estimate that a rise in middle class taxes and the corresponding decrease in consumption would shave 1.4% off GDP, which is consistent with the signals being telegraphed from that other great oxymoron in DC, the Congressional Budget Office.

Even the president's team has estimated that consumers will spend nearly $200 billion less as a result of higher taxes alone.

Conversely, the latest GOP deal called for $800 billion in new revenue via tax reform while not increasing tax rates on the top 2% of taxpayers. It also involves limiting tax credits and capping deductions.

Naturally it was quickly rejected by the White House because it doesn't meet the "test of balance" according to White House communications director Dan Pfeiffer. House Minority Leader Nancy Pelosi, D-CA, was quick to jump on the bandwagon noting that the GOP's proposal is yet "another assault on the middle class, seniors, and our future."

Exactly -an assault on the middle class.

Willis believes "that taxes shouldn't go up on anybody right now. Growth is sluggish and anemic so the prospect of tax hikes don't make sense, especially on those the president purports to protect."

I agree. What you want to do is improve growth. Do that and you have improved employment.

That, in turn, takes more people "off the dole and leads to higher receipts," Willis added.

Half of Every Dollar Earned?
But how high should taxes go, and who's going to pay them?

For some reason, corporate taxes are strangely missing from the entire discussion.

According to the United States Office of Management and Budget (OMB), the 2013 fiscal year budget calls for $237 billion in corporate income tax revenue against individual income tax revenue of $1.165 trillion.

If you add in Social Security and other payroll taxes, individuals are on the hook for more than $2 trillion in taxes, or 81.25% of all revenues the government intends to collect.

Very few corporations actually pay the often demonized 35% U.S. corporate tax rate. In fact, the average U.S. corporation pays just 12%. Many don't even pay that.

Instead they use legions of lawyers and thousands of foreign subsidiaries to pay taxes only when they bring them home and repatriate their profits. Or, they stage a tax rebellion of sorts.

Willis believes that the White House doesn't grasp the fact this is already well under way as companies like Oracle, Costco, Wal-Mart and more than 200 others rush to pay dividends early with the express purpose of avoiding tens of millions of dollars in higher taxes that presumably lie ahead in 2013.

Adding insult to injuries the struggling middle class has already sustained, what these companies are doing is "all very quiet and perfectly legal," she observed.

If only the middle class had that option.

Let's just hope it's not half of every dollar earned.

Source :http://moneymorning.com/2012/12/07/the-fiscal-cliff-is-set-to-clobber-the-middle-class-with-nearly-50-tax-rates/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014