Best of the Week
Most Popular
1.BrExit Looks Set to Win EU Referendum, Final Opinion Polls Give LEAVE Lead Over REMAIN - Nadeem_Walayat
2.BrExit Morning - New Dawn for Britain, Independence Day! - Nadeem_Walayat
3.LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - Nadeem_Walayat
4.BrExit to Save Europe from Climate Change Refugee Migration Apocalypse - Nadeem_Walayat
5.Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - Nadeem_Walayat
6.EU Referendum Latest Opinion Polls Show LEAVE Halting REMAINs Surge - Nadeem_Walayat
7.Gold And Silver – Insanity Is World “Norm.” Keep Stacking! - Michael_Noonan
8.Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - Nadeem_Walayat
9.Gold And Silver: Security, And BREXIT - Michael_Noonan
10.BrExit Vote - "The Trend is Set" -- And What You Should Pay Attention to Next - EWI
Free Silver
Last 7 days
UK Interest Rate Cut to 0.25% Imminent and More QE Money Printing - 1st July 16
Michael 'Little Finger' Gove Slays Boris 'Baratheon' Johnson in Game of Thrones for Next Tory PM - 30th June 16
Gold, Silver, Bonds and Stocks Path Towards Inflation - 30th June 16
Stock Market SPX Rally Nearing its End as DB Gets Slammed - 30th June 16
Brexit & The Precipice - 30th June 16
Gold and Silver Precious Metals Bull Market Update - 30th June 16
14 Signs the World Is on the Verge of Generational Chaos - 30th June 16
BrExit Stock Market Upwards Crash as FTSE Recovers 100% of Friday Plunge - 30th June 16
Stock Market Rally Runs Out of Steam - 29th June 16
Rapid Growth:The Financial Trends Of Online Gaming - 29th June 16
FTSE and Sterling Brexit Trading, Deconstruction of the EU Referendum Result - 29th June 16
Stock Market Bounce May be Over - 28th June 16
Stock Market Meltdown Likely to Drive Gold Towards $1,500 - 28th June 16
Brexit Victory over the EU Globalists - 28th June 16
Brexit Psyop: Greenspan Falsely Blames the Brits for the Crash and Chaos to Follow - 28th June 16
Greenspan Calls Brexit a ‘Terrible Outcome’ as Euro Area Tested - 27th June 16
Stock Market SPX Below Mid-Cycle Support - 27th June 16
Best Holidays for Summer 2016 - 27th June 16
Another Stocks Bear Market? - 27th June 16
BBC EU Referendum Result Highlights - YouGov, Markets, Bookmakers, Pollsters ALL WRONG! - 26th June 16
Investors Map Post-Brexit Strategies Amid Global Market Upheaval - 26th June 16
Gold Price Weekly COT Update - 26th June 16
First the UK, then Scotland ... then Texas? - 26th June 16
Stocks Bear Market Resumes or Just More Noise - 26th June 16
Gold And Silver: Security, And BREXIT - 25th June 16
Dow, Euro & Brexit Recap - 25th June 16
Resistance Holding Gold Stocks after Brexit - 25th June 16
Venezuela vs. Ecuador (Chavismo vs. Chavismo Dollarized) - 25th June 16
Gold, Silver And PM Stocks Summer Doldrums Risk - 24th June 16
Here’s Why China “Economic Hard-Landing” Worries Are Overblown - 24th June 16
Jubilee Jolt: Markets Crash, Gold Skyrockets as Britain Takes Brexit - 24th June 16
BrExit Morning - New Dawn for Britain, Independence Day! - 24th June 16
LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - 24th June 16
Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - 24th June 16
EU Referendum Shock Results Putting BrExit LEAVE in the Lead Hitting Sterling Hard - 24th June 16
Final Opinion Poll Gives REMAIN 52% Lead, Bookmakers, Markets and Pollsters ALL Back REMAIN Win - 23rd June 16
Does BREXIT Matter? Outlook for Sterling - 23rd June 16
Keep Calm and Vote BrExit - Last Chance to Break Free of EU Superstate - 23rd June 16
Here’s the Foreign Policy Trump and Clinton Really Want - 23rd June 16
Details Behind Semiconductor Stocks Leadership - 23rd June 16
Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - 23rd June 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Market Volaility

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

© 2005-2016 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

Catching a Falling Financial Knife