Wednesday, January 2, 2013

10 Reasons Why the Fiscal Cliff Deal is Bad for America

    Repeatedly one hears the definition of “compromise” as one where no one gets all that they want.  Perhaps this is true in some cases, but generally compromises also mean that the deal struck is beneficial in some ways.  If that is the case, this did not happen here.
    First, did the deal raise taxes on the top two percent of the population?  In theory it did raise taxes on some, but with the new tax beginning at family incomes of $400,000 and individual incomes of $200,000 it is closer to the top one percent.  But that is in theory.  Wait for the dust to settle to reveal that with deductions and loopholes even this new tax on the top one percent is less than meets the idea.
    Second, did the deal really raise much in terms of revenue?  Except for the Social Security  payroll tax, not really.  There is very little new revenue generated here that will do anything substantial to help with the deficit.
    Third, Congress did nothing to address the budget deficit.  They kicked the can down the road for two months by delaying the automatic spending cuts.  This solved nothing.
    Fourth, did the deal do anything to ease the tax burden on the poor and middle class?  Not really.  While the Bush era tax cuts were preserved for many, the Social Security payroll tax goes up by 2%.  Best estimates are that most Americans will be paying more taxes this year than last because of this.  Middle class America will see average incomes fall by about 1.5%. Expect to see smaller paychecks except for the rich.  Remember, Social Security taxes cap out at approximately $110,000.   For the rich, anything above this number is not taxed. 
    Fifth, if the goal of the deal was to stimulate the economy, that it will not do.  The deal had no fiscal stimulus and the tax increases for Americans will potentially affect GDP growth (According to the Tax Analysts Blog) by about .6 of the GDP.  In effect, the deal hurts the economy.
    Sixth, the deal failed to deal with the debt ceiling and that issue will come due soon.
    Seventh, since the deal is short term uncertainty regarding the future has not been addressed and it will continue to hurt the economy in terms of business investment and consumer confidence.
    Eighth, The deal to avert the fiscal cliff neither produced much in terms of short term  benefits nor long term solutions.
    Ninth,   The deal revealed the face of what we may expect in a second Obama administration. Obama yet again demonstrates an inability to negotiate.  He had more political leverage now than ever yet he got very little.  Come January 20, he is a lame duck.
    Tenth, overall, the deal was horrible and failed to secure any of the stated objectives.  Commentators will turn to the complaints by both the conservatives and liberals as a sign that this must be a good deal.  This is the wrong approach for two reasons.  First, both sides are correct that the deal is bad.  As noted above, it does nothing to address any of the pressing problems the Fiscal Cliff represented.  Second, the issue is not whether Democrats or Republicans liked the deal.  Unlike private parties whose negotiations are supposed to be of benefit to them, here the two parties are working for the people.  The public or the public interest is the third party beneficiary or victim of their deal.  Here the public loses. 
    What Congress and the president have failed to understand is that  what they do in Washington is not about what benefits or makes the two parties happy and upon which they can agree.  It is about serving the public.  Somewhere along the line Congress and the president have confused what they can agree to with what is good for the American public.  Agreement for the sake of agreement is not good policy.  This is goal displacement.  We have now reached a sad point where we think simply getting a deal or appeasing the two parties is what the purpose of legislating is about.


  1. And eleven, it made most of the Bush Tax Cuts permanent, potentially limiting future revenue generating avenues for the govt. (Jeffrey Sachs).

    But you know, it's those Republicans...

  2. As you know, the numbers are $400k and $450 k on the rise in income taxes back to the "Clinton rates." However, after $200k, deductions begin to be phased out. What will this do to charitable contributions if high net worth donors do not have a viable charitble deduction? It won't help with some. One could argue that the increase to 20% on capital gains might encourage the gift of stock, but it often cuts the other way. And don't forget the increase in the Medicare tax of 1% or so. Overall, a very incompleted deal at best and a terrible precedent and policy at worst. jim toscano