Congress and President Are Looking at the Wrong Things — Economically Speaking — a Not so Isolated Example from the Fiscal Cliff Deal

07 January 2013

Sly politicians “screw” us behind our backs — often in fine print and lies

I will illustrate this assertion with details from the Fiscal Cliff Deal. These elements demonstrate a larger point:

Congress and the President are looking to fix (in both senses of that word) the wrong economic things.

First — the Fiscal Cliff Deal duplicity

The Fiscal Cliff Deal did not exactly do what “we” thought it was supposed to.

The President had led the American middle class to believe that the Deal was supposed to protect its interests — by equilibrating actual tax payments (as opposed to purported “rates”) on the rich — as compared with the rest of the 99 (or so) Percent.

It didn’t.

Background — the Fiscal Cliff and Deal

The artificially manufactured Fiscal Cliff was intended to create such disastrous economic conditions (down the road) that no one, even in a highly partisan Congress, would allow its automatically imposed tax increases and (unintelligently directed) deficit cuts to take place.

The assumption — that the coming Economic Horror would motivate our leaders to act in other than moronic fashion — proved not be true.

So, the President and House Speaker Boehner would up making a fairly silly, last second, temporary Deal to avert it.

The Fiscal Cliff Deal accomplished virtually nothing of lasting economic merit. Other than avoiding the bullet that “we” had aimed at our own brains.

In this Cliff Deal fiasco, a couple points became clear:

First, the President is a master at looking good, while doing nothing or making things worse.

And, second, he and the Congress are outstanding at looking in all the wrong places for solutions to America’s real problems.

President Obama — looking good, while making things worse

The President — once again demonstrating his genius for substance-lacking, self-aggrandizement — managed to turn the Fiscal Cliff confrontation into a political triumph of sorts. He used the Cliff’s imminence to force allegedly evil Republicans to accept a tax rate hike on the “rich.”

Stripped of the deception that the President (apparently intentionally) created, he surreptitiously agreed to a deal that:

(a) did raise the tax rate on the “rather rich”,

but

(b) simultaneously gave “them” an obvious way to escape most or all of the increase,

so that, disproportionately, most of the burden is going to fall on

This result is not what the middle class thought was going to happen.

Details of the Deal’s plutocrat-favoring scheme

Henry Blodget, writing for Business Insider, did ordinary Americans a favor a few days ago, when he took a look at the specifics of Fiscal Cliff Deal. His analysis implicitly exposed the President’s subtle hypocrisy.

Keep in mind that — if the Deal had not been made — the Bush Tax Cuts would have expired. Which means that the details of the Deal have to be compared with what would have happened if no Deal had been made:

All income up to $110,000 will now be socked with a 2 point increase in the payroll tax, from 4.2% to 6.2%, which will pluck $2,000 out of the pockets of families making $100,000 a year.

Meanwhile, thanks to a deal on dividend taxes, the highest earning Americans have gotten a massive tax cut over the taxes that would have taken effect had a Fiscal Cliff deal not been agreed to.

The Deal divided “rich” folks into two groups and made changes to tax rates on their investment dividend income:

(a) For those making more than $450,000 annually — dividend taxes will go up from 15 to 23.8 percent, which includes the 3.8 percent ObamaCare surcharge.

(b) For those making between $250,000 and $450,000 — dividend taxes will stay at 18.8 percent, which includes the ObamaCare surcharge.

Both these rates are significantly less than the pre-Bush 39.6 percent rate on dividends.

Who really gets screwed by the Deal?

By Mr. Blodget’s calculation:

People who made more than $200,000 in 2009 made $70 billion in dividends that year.

The Deal will save them $14 billion, as compared to what they would have had to pay, if the pre-Bush rates had expired as scheduled.

The top 400 incomes in 2009 collected about $10 billion in dividends that year.

The Deal will save them $2 billion, as compared to what they would have had to pay, if the pre-Bush rates had expired as scheduled.

Meanwhile, working class payroll taxes will rise by $125 billion.

As compared to letting the Bush-tax cuts expire (as scheduled), deficit hawks successfully subsidized saving “rich” folk $20 billion — by making the working class pay $125 billion in higher taxes.

Is Henry Blodget correct? — Looks that way

From FactCheck.org (at the Annenberg Public Policy Center):

Obama boasts that “middle-class families” will not have to “pay upwards of $2,000 more in taxes this year.”

About 77 percent of taxpayers will pay more in taxes this year — nearly $1,200 more for those earning between $75,000 and $100,000, a group that fits squarely in Obama’s broad definition of middle class.

[Taxpayers] may be surprised when they get their first paycheck this year to see that it is a bit lighter. That’s because a two-year reduction in the Social Security payroll tax — that pesky FICA line on your paycheck — was allowed to expire.

As a result, those with income between $40,000 and $50,000 would pay an additional $574 in payroll taxes in 2013, according to the nonpartisan Tax Policy Center.

Those with household income between $75,000 and $100,000 (still solidly middle-class by Obama’s definition) would pay an additional $1,194 in 2013.

Allowing the payroll tax to go back up to 6.2 percent from 4.2 percent will mean an average tax hike for all Americans of $721 over the course of 2013. That’s $60 a month.

Overall, the Tax Policy Center estimates that 77 percent of Americans will be paying more in taxes in 2013 than they did in 2012.

“For most, the only reason is because of the payroll tax,” said Roberton Williams, a senior fellow at the Tax Policy Center.

Sal Gentile, also using data from arguably non-partisan sources, agrees and more explicitly points the finger where it needs to go:

Among Americans who make between $20,000 and $30,000 a year, 66.9% pay more in payroll tax than income tax, according to the Tax Policy Center.

To those people, the payroll tax is what matters more. It’s what takes the bigger bite out of their paychecks.

Among Americans who make between $200,000 and $500,000 a year, 97.6% pay more in income tax than payroll tax. To them, the Bush tax cuts were a boon.

And since income taxes went up only on income over $400,000, it’s easy to see who won in that battle.

Citizens for Tax Justice estimates that people who make in the range of $279,000 will get a tax cut of about 3%, compared to just 1.9% for people making an average of $14,000 a year.

In fairness to the President — maybe he assumed something that “we” didn’t know — and forgot to remind us that we did not know it

Commentators are near unanimous in indicating two things about the payroll tax (FICA):

First, the decrease in FICA that occurred earlier in the Obama Administration was not part of the earlier imposed Bush Tax Cuts.

Second, there was no political will to extend the payroll tax decrease — presumably on grounds that these taxes fund the very entitlements that Congress believes to be such an onerous deficit problem (Social Security and Medicare).

Consequently, the President might defend himself by saying that FICA had never been part of his calculation in the Cliff compromise.

On the other hand, a more honest person would not take that slimy route to misleading self-excuse.

More important — even if we do allow the President to excuse away his dishonor, the fact that he agreed to the Deal illustrates how he and Congress are both (probably deliberately) missing the most fundamental economic point.

The fundamental economic point — “screwing” the middle class is not going to do the national economy any good

If one is going to finance $20 billion in dividend income savings for the “rich,” it does not make economic growth sense to boost taxes by $125 billion on financially struggling folk.

Taking between $300 and $2,000 dollars from ordinary families makes no sense in difficult economic times. Especially, when Congress itself has either:

(a) induced corporate employers to flee American shores

(b) done virtually nothing to discourage that race to global bottom.

A problem-illustrating question — Whom did TARP help, and whom did it ignore?

The bailouts (TARP) — which Presidents Bush and Obama initiated — almost exclusively benefited elite (too big to fail) financial corporations, without imposing future behavioral restrictions.

In contrast, TARP did virtually nothing to alleviate distress in the real estate and building sectors, where the Crash began. Millions of home owners were, and still are, completely on their own. Most of these people are middle and lower socioeconomic class.

Does that tell you something about Washington's focus?

The moral? — Washington’s plutocrat-supporting deceptions

The Fiscal Cliff Deal serves as an example of Washington deception. It reveals how complicit President Obama is in perpetuating deceit.

Recall that:

Citizens for Tax Justice estimates that people who make in the range of $279,000 will get a tax cut of about 3%,

compared to just 1.9% for people making an average of $14,000 a year.

Most ordinary Americans would want to know this. But the President did not refer to the payroll tax hike in any of the comments about the Deal that I heard him make. Nor did his Office of the Press Secretary mention it in the Administration’s self-serving, dewy-eyed self-congratulation:

Press Secretary, Fact Sheet: The Tax Agreement: A Victory for Middle-Class Families and the Economy, The White House (01 January 2013) (re-visited 07 January 2013)

The reality is that we live in a Plutocracy that both American political parties protect. The socioeconomic elite steal from the rest of us in two ways:

(i) buying politicians

and

(ii) obscuring the Truth in small print and overt lies.

The Fiscal Cliff Deal is a good example of this kind of deception. And the Deal also illustrates how neither the President, nor the Congress, is actually focused on improving economic conditions.

The national political Game is exclusively about helping the elite hang onto their positions of economic and political superiority.

Consequently — if you are member of the 99 Percent and concerned about your family’s economic and freedom future — you would be wise to read the Fine Print and consult the Facts, before signing off on anything that our leaders want to slip by us.

PeteFree.com

Congress and President Are Looking at the Wrong Things — Economically Speaking — a Not so Isolated Example from the Fiscal Cliff Deal