On Tuesday night, the U.S. House of Representatives approved a Senate bill that would avoid the “fiscal cliff.”
The deal with the House was made by Vice President Joe Biden, who had been talking with Republican Senate Minority Leader Mitch McConnell. McConnell had originally been negotiating with Democratic Majority Leader Harry Reid, but the two hit an impasse, with Reid saying he had no other counteroffers.
“Suddenly and irreversibly, the talks veered into a new direction. Within minutes, the Kentucky Republican was dialing up Vice President Joe Biden, elevating his old colleague to the Democrats' new negotiator-in-chief,” the National Journal reported on Tuesday. “It was the fateful decision that put the Senate and White House on the pathway to the deal eventually approved by the Senate and the House, ending weeks of drama over the fiscal cliff. It also left Reid standing on the sideline stewing.”
The media has tried to sell it as though the collapse of civilization has been averted, but the bill will hurt the American people in the long run. American workers will see a two percent decrease in the amount of money on their paycheck due to the expiration of 2010’s payroll tax cuts, “which lowered the employee portion of the Social Security tax from 6.2% to 4.2%,” Zero Hedge reports. “The direct cost of the payroll tax expiration will be $125 billion per year, or nearly a full percentage point of GDP, and in practical terms, an individual earnings the maximum cap of $113,700 (for 2013), will see their paycheck drop by $200/month.”
The bill further redefines “rich” as anyone who makes over $400,000 a year ($450,000 for joint filers). These people will see their taxes increased to 39.6 percent. These are the people who own small businesses which employ a majority of Americans. Due to this tax increase, unemployment will worsen in the United States, according to economist Peter Morici, who writes:
Higher Social Security payroll taxes were already rolled into growth projections for the New Year. The "fiscal cliff" deal raises about $40 billion to $50 billion annually from higher rates on family incomes of more than $450,000 but also extends spending programs that were set to expire -- for example, long-term unemployment benefits; therefore, the new net impact on aggregate demand isn't large.
On the supply side, higher taxes on small businesses will reduce returns on investment -- this will slow capital spending and new hiring in 2013 and even more next year.
Small businesses now have more certainty -- the assurance of more burdensome regulations, healthcare costs and taxes and this will burden growth.
Morici adds that 356,000 jobs need to be added every month to reduce unemployment to six percent, but this is highly unlikely.
According to the Congressional Budget Office (CBO), the bill will increase tax revenues by $620 billion, while only cutting $15 billion. This means that for every dollar cut, $41 will be taxed, representing a 41:1 ratio. When it comes to government spending, $15 billion is nothing. In 2011, the government spent $10.5 billion every day, so they’ve cut a little over a day’s worth of spending.
The CBO also estimates that the bill will result in an additional $4 trillion to the deficit over the next ten years.