So what do you think? Is this good for the country? Did one side win? Did one side lose? What about the process?
First, I want to address the process. This might sound odd to some, but in my opinion, the process is the biggest winner here... to some extent. Our bicameral legislature was established to do exactly what the Congress just did: Debate, delegate, argue, and move slowly towards a compromise. While the Fiscal Cliff negotiation process was "oversensationalized" by the media, (albeit, a heavily-slanted media that used this opportunity to push an agenda), it went precisely as our Forefathers envisioned. Our legislative body, the Congress, was designed to be slow. It was designed this way to ensure tyrannical, quick, dictator-like laws were difficult to enact. Our Forefathers believed that if laws were passed quickly, they would not be passed properly. If it was possible for a bill to become law in quick fashion, without debate (which is a representation of the people spread around this country), why not just have one man or woman, namely, a king or queen, simply implement laws? I addressed this previously, and I do believe wholeheartedly in the concept of legislative compromise:
"Compromise is NOT bargaining to get 100% of what you want. Team X wants A and can give B, and the Team Y wants C and can give D. It must also be understood that a "compromise" is not the attempt, nor the result to get all of the other side's object(s) of concession. A compromise is not, as a condition of the compromise, saying, "I will do some of what you want, if you do ALL of what I want." With this simple letter-based anecdote, a proper compromise means the first side gets some of A while giving up some of B, and the second side gives up some of D in order to get some of C."
In the end, this is what happened. Outsiders will surely attempt to analyze who won and who lost, and they'll try to quantify the bill based on who gave up what and who gained what, but that's all meaningless when discussing the process. Here, the process worked, and the only reason I initially said "to some extent" with my rating was because it was pushed to and past, irresponsibly, a self-imposed deadline. Ideally, this deal should have been negotiated prior to the "Fiscal Cliff" being reached, but sadly, it was not. Like an irresponsible high school student, our Congress, along with the President, talked about doing something for months, but unfortunately, they all waited until the end to get something done. All in all, the Congress did what it was intended to do, and no party gave all, while no party gained all. Score one for American-style democracy.
Now to the important part: the deal. In my opinion, this is an absolutely terrible deal. First, it further promotes discrimination. I've addressed this many times before: I do NOT favor any form of federal progressive-rate taxation on the grounds that it is inherently discriminatory. I don't care if the country's budgetary issues could be resolved tomorrow by a "tax the rich" plan, I would never be in favor of a system whereas one group of citizens is taxed at a greater rate than another. We are America. Our government is supposed to treat each citizen, in every aspect of life, equally and without prejudice. Why is it okay, in this country that is founded upon this principle, to tax people in discriminating fashion using different rates for different citizens? We seem to absolutely love the concept of equality until it applies to the issue of taxation, an issue in which most citizens seem to become prophets of discrimination so long as someone else gets taxed. They will happily overlook the inherent inequality in making someone else pay a greater rate than themselves if it doesn't touch their wallet as much. Think about it: when would it ever be okay to corner a small group of citizens and treat them differently with respect to federal law? (Yes, I know the debate applies to such legislation as DOMA - something I think the federal government should repeal, and in all instances federal, the government should treat everyone equally). Would it be okay if the government treated people differently with respect to military service? What if the government figured out which race of people tended to be the healthiest and legislated a bill that said that citizens of that race must serve longer terms in the military relative to service members of every other race? What if the bill said that citizens of that race were required to serve in the military while other races' service was voluntary. It's for the good of the country, right? Of course not. We should never discriminate in this way, and I'm sure the country would be up in arms (well, probably not since it would only affect a small portion of the population) if a law like this was enacted. But, as with money and taxation, no one seems to be upset since it doesn't affect 99.27% of the population. To me, the increased "progressiveness" of this bill with respect to taxation, and the government promotion of discrimination is disgusting, un-American, and another dangerous precedent setter for further tax policy legislation.
Secondly, what in the world did this solve from a budget/deficit standpoint? A previous analysis I conducted showed the dismal effects of raising tax rates on those making > $200,000 per year. In the Fiscal Cliff bill, that threshold is raised to individuals making > $400,000 per year and families making $450,000 per year. On the revenue side, the tax base of wealthy taxpayers shrunk from about 2.0% of the population to about 0.73%. Therefore, if the original plan to increase revenue by raising taxes on those making > $200,000 raised a minuscule amount of revenue, how in the world would shrinking the tax base do anything better? The fact is, it doesn't. Using simple "back of the envelope" math utilizing the taxpayer income breakdowns seen here, I'd estimate there to be about 1,025,600 taxpayers are above the threshold that will experience the increased tax rates in the new bill. Their top marginal rate jumps from the current 35.0% rate to 39.6% rate, or 4.6 percentage points. To maximize the amount of revenue raised, let's just assume these taxpayers see their taxes increase by 4.6 percentage points (we will ignore the additional math of marginal rates here and just go with a flat-line 4.6 percentage point increase... it will be close, and for this analysis, it actually yields more revenue). Using the data from chart #2 in the previous link, I'd say a safe estimate for the total income earned by these high earners is $1,355,960,691,392. A 4.6% tax of this income would be $61 billion in new tax revenue. That's a mere drop in the bucket relative to the federal budget deficit of approximately $1.3 trillion. Additionally, the CBO confirms this, and this Fiscal Cliff "deal" does virtually nothing to stop our government's monetary bleeding. So was a deal that does virtually nothing to reduce our deficits on the revenue side really worth discarding American principles of equality for all? I don't think so. Some will say, "well, it's a start, and every bit helps." While this is true, I personally don't think it is worth it, and the economic consequences of taking money out of the pockets of job creators, venture capitalist investors, and other engines of financial/economic expansion, in my opinion, will far outweigh the benefits of the inefficient, wasteful, semi-corrupt government receiving more revenue that barely amounts to 22% of the interest payments we make every year.
Thirdly, this did absolutely nothing in the way of spending. NOTHING. All it did was kick the can down the road. The "sequester" - the massive spending cuts that were set to begin upon going over the fiscal cliff - have been pushed down the road for two months. This leaves them "unaddressed" and unanswered, and with a new House coming in tomorrow, the negotiation process begins again. Get ready for another Fiscal Cliff in about two months time. As expected, this is barely being reported by the press.
Fourth, and a truly sad point at that... hello increased taxes for all!! Absent from the Fiscal Cliff deal was an extension of the Payroll Tax Holiday - the 2 percentage point reduction in American workers' payroll tax requirement. This provision wasn't even addressed in the Fiscal Cliff talks, and because of that, pretty much every "regular" worker in America will see their take home paychecks shrink. While the original intent of the holiday was temporary, Americans got used to it. For two years, they experienced a certain "type" of paycheck. Now, with the expiration of the holiday, their take home pay goes down. Many will argue, "well, yes, it was temporary, and no, the holiday didn't help the economy." I argue that a $30 per paycheck loss every two weeks will hurt the average worker, and the effect of the holiday's expiration will feel like a tax hike regardless of the holiday's original temporary notions. In my opinion, this should have been extended for at least another year, and when it came time to let it expire, it should have been done gradually. I know for me, since I get paid on Wednesday, my paycheck decreased by $42.66. That's a $1,397 per year hit for me personally, and that's $1,397 that I cannot turn around and spend on food, shoes, gas, and other goods and services that drive the economy. If raising taxes in a "down" economy is bad, why in the world was such a massive tax increase on the middle class permitted?
I could go on and on about this deal (yes, I've read the pdf in its entirety), but these things I addressed, to me, are the 4 major sticking points. I think the deal is pure junk, and the sycophantic individuals that make up our government will be sure to spin it, bleach it, fluff it, and present it in a way that inflates their heads further. They will sell this as a "victory for the American people" and a bill that "while not perfect, is better than going over the Fiscal Cliff." I'll readily disagree with that notion, pointing to the four main reasons I've cited, and one main one I didn't: precedent. While our elected officials will pat themselves on the back for averting the Fiscal Cliff, all they did was set a precedent to more delaying, back-room negotiations, discrimination, and ineffective government solutions where the members of this government are concerned more about how they look than how they legislated.
What do you think? Please share your thoughts below. Also, be sure to vote in our Fiscal Cliff poll on the left side of the blog.