So a bi-partisan Congress passed legislation on tax rates last night (257-167). On the surface this is a big victory for the vast majority of Americans, who won't see their income tax rates rise. President Obama is the clear political winner here, even if he had to redefine "rich" as those making more than $400,000 per year.
However, there were a lot of poison pills that had to be swallowed in order to get this agreement. And we did not avert the fiscal cliff (more on this below).
This is a clear victory for President Obama because certain tax deductions and exemption will be eliminated, tax rates will be raised on investment income, while taxes on inherited wealth (the so called "death tax" on multi-million dollar estates) will be reinstated.
While the vote means the vast majority of Americans will not see their income tax rates go up, those making more than $400,000 ($450,000 for married couples) will pay a marginal tax rate of 39.6 percent (instead of 35 percent). President Obama did get a victory (of sorts) because he was also able to get a limit on itemized deductions for those making over $250,000 a year ($300,000 for married couples).
While those making between $500,000 and $1 million will only pay about $15,000 more in taxes, those making above $1 million will pay about $170,000 more in taxes per year. The biggest hit will be on people earning more than $2.7 million annually. They will pay about $440,000 more in 2013.
Critics of the bill from the right say the bill does little, if anything, because it really doesn't touch long-term spending issues, like Medicare. And they would be correct. In fact, included in the bill is an extension of unemployment benefits (1 year) and refundable tax credits for college students and low-income families.
Critics from the left argue while the vast majority of Americans will not see their income tax rates go up 77 percent of America's wage earners will see their payroll (or social security) tax rate go up 2 percent (i.e. return to it's "normal" rate). This will pull more than $100 billion out of the hands of the middle class (a little over $80 per month for someone earning 50,000 a year) in 2013.
But wait there's more. The good people at Nakedcapitalism.com found at least eight major subsidies in the legislation that help out everyone from NASCAR and Disneyland to Goldman Sachs and Railroad companies.
Here's the nuts & bolts behind the our latest corporate giveaway:
* NASCAR: $43 million in subsidies to builders of racetracks and associated facilities.
* RAILROADS: Over $100 million in subsidies for Railroads.
* HOLLYWOOD/DISNEY: Tax breaks that amounted to $150 million in 2010 and 2011 for "certain film and television productions."
* MINING: Tax incentives for mining companies to buy safety equipment.
* GOLDMAN SACHS/TRUMP: Tax exempt financing for New York "Liberty Zone" buildings. This is little more than subsidy for Manhattan apartment and office construction that will benefit, according to Bloomberg "Goldman Sachs and Bank of America Corp."
* INCOME TAX BREAKS: $9 billion in subsidies for U.S. firms that lend to subsidiaries abroad and earn income from that loan. So, yes, Coca Cola U.S. can lend to their firms abroad and then not pay taxes on income from that transaction.
* REPATRIATED PROFITS/TAX BREAKS: Related to above, tax credits are offered for U.S. firms earning money abroad.
* R&D GIVEAWAY: Bonus depreciation allowances and Research & Development credits, which added up to more than $110 billion for 2010 and 2011.
So, yeah, if you add up all the tax breaks, we actually give more back to corporate America in subsidies than we take in from the $100 billion we get from raising the social security tax level by two points.
THE REALITY ... WE'RE STILL ON THE CLIFF
Here's the worst part. The fiscal cliff was not entirely averted.
Our debt ceiling was reached on New Year's Eve while sequestration, or automatic cuts of $110 billion, goes into effect in early March (unless Congress finds the same amount in spending cuts).
Here's the real fun part. There's no debt ceiling in the Constitution.
So, prepare for more of the same in 2013.
Seriously, is this any way to run a country?