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GHEI: The deal by the numbers
‘Fiscal cliff’ pact merely delays the inevitable
The new year kicked off with Washington's failure to deal with its spending addiction. Far from restraining outlays, the "fiscal cliff" package is yet another budget-buster cooked up by Congress and the White House.
According to the Joint Committee on Taxation, spending will be "cut" by $15 billion. Of course, these are cuts only as defined by Washington math, in which spending rises more slowly than originally estimated. Congressional Budget Office estimates show government spending is slated to rise every year in the next 10 years, adding $3.9 trillion in debt by 2022.
The deal does not renew the 2 percent payroll tax cut, which means more than three-quarters of American households will see their taxes increase. Without addressing Social Security reform, maintaining the cut would have further damaged the retirement program, which is already actuarially bankrupt, so this is not the worst aspect of the bill.
That honor goes to President Obama's politically motivated class-warfare tax hike. The highest-income Americans, including small businesses that file taxes on individual forms, will be writing bigger checks to the Internal Revenue Service. The income tax rate goes up to 39.6 percent for single taxpayers earning $400,000 and married couples earning $450,000. The successful will also be hit with more in capital gains taxes and dividends (20 percent instead of 15 percent) and a new 3.8 percent Obamacare tax. The new lower limits on itemized deductions on singles making $250,000 and joint filers making $300,000 also revives the marriage penalty for these families. Capital gains taxes are a pernicious form of double taxation that discourage savings and investment. Even Greece has better policy than we do on this point.
The estate tax goes up to 40 percent, from 35 percent, but only for estates valued at more than $5 million. That might seem to be a relatively small increase -- but the estate tax was zero as recently as 2010. The estate tax also is a particularly punitive and perverse tax, incurring disproportionately high administrative and other costs relative to the revenues it generates. The death tax hits particularly hard small businesses and family farms, which often have to sell the farm or business to pay the taxman.
It's a recipe for continued economic stagnation. The new taxes further penalize the thrifty, who are already suffering from the Federal Reserve's policy of artificially maintaining a near-zero interest rate. Unemployment benefits were extended, further eroding the incentive to work. The entitlement elephant in the room has been ignored.
The only consolation is the tax hikes came in at about $1 trillion less than Mr. Obama's opening offer. Americans will pay about $620 billion more over the next 10 years, instead of $1.6 trillion. That won't mean much to the unemployed and those hit hardest by the economic malaise as entrepreneurs see their incentive to succeed disappear.
Nita Ghei is a contributing Opinion writer for The Washington Times.
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