IF nothing else, the debate over the “fiscal cliff” has dramatically illustrated the true cost of President Barack Obama's fiscal policies. If the president and Congress don't reach an agreement, roughly $671 billion in tax increases and spending cuts would take effect — yet the nation would still continue to run a deficit nearly twice the size of the pre-recession 2007 deficit.
If the tax cuts first enacted under former President George W. Bush are allowed to expire due to fiscal cliff inaction, the income tax rate will jump from 35 percent to 39.6 percent for top earners (including many small-business owners) while those in the lowest income bracket face a tax increase of 50 percent. The marriage penalty will be reinstated, the child tax credit will be cut in half, the death tax rate will be as high as 55 percent, the capital gains tax rate will rise from 15 percent to 23.8 percent, and the top dividends tax rate will rise from 15 percent to 43.4 percent. In addition, several Obamacare-related taxes take effect next year, further impacting citizens.
Falling over the fiscal cliff also could result in nearly 30 million additional filers being hit by the alternative minimum tax, including some earning as little as $33,750, according to the IRS. The impact of those fiscal cliff tax increases would likely be felt by nearly all Americans in some fashion.
If left in place, the Tax Policy Centers notes, the Bush tax cuts would provide $43 billion to families with children in 2013 that will be eliminated by cliff diving. If the rates and deductions aren't extended, the center predicts that nearly 72 percent of families in the lowest 20 percent of incomes and 89 percent of families in the second income quintile will see their taxes rise, “in many cases by a substantial share of their income.” The center predicts the average increase will exceed $1,400 for families in the lowest quintile and $1,600 for families in the second quintile, due largely to the reduction in the child tax credit.
Time magazine recently noted a hypothetical couple with four children and combined earnings of $82,000 could face a tax increase of up to $6,000 per year if they use child care and invest $10,000 in stocks and 401(k)s. That huge spike will occur because the marginal tax rate on much of the couple's income will jump from 15 percent to 28 percent, while their standard deduction will decline and their child tax credit will be slashed. Changes in the payroll tax and dividend tax increases would also hit the couple.
Yet even with everyone from the very rich to the relatively poor taking a (sometimes substantial) tax hit, the fiscal cliff's tax-and-spending changes would still leave the United States with a sizable deficit. The cliff involves about $671 billion in tax increases and spending cuts; the country is on pace for a fifth consecutive annual deficit of more than $1 trillion. That leaves a deficit of more than $300 billion.
This is the harsh reality of Obamanomics. Under this president, you could increase taxes on the rich, the poor, married couples, those with children, small business, big business and everyone in between, and slash defense spending — and you still can't pay for all his spending. You don't even come close.