Fiscal Cliff deal. Congress's Corporate sell out - a financial analysis

Summary

Taxes on the poor and middle classes are going to rise by between $200bn and $300bn a year.
Taxes on those earning over $250,000 will rise by about $70bn a year.   

There are ZERO cuts to the $1tn+ of annual Corporate Welfare.
There are no cuts to military spending, currently at $1,219bn a year.

There are NO spending cuts. Government spending is planned to rise VERY sharply to over $5tn a year by 2020. This is a 50% increase from 2012 levels in just the next 8 years.

This dramatic increase in planned spending will mostly go on more Corporate Welfare and military spending.
Social Welfare - SS, Medicare etc. is not planned to increase by 50% in the next 8 years.




Where the Fiscal Cliff stood before the Fiscal Cliff deal

Income taxes

Payroll Tax

The payroll tax expired.
The great majority of this $108bn a year tax increase falls on the poor and the middle classes.
There are FAR more people earning less than $100,000 than earn over $100,000.
It is a flat rate increase of 2%.
The payroll tax is only applied to gross income up to $110,100 so it has very little effect on the rich

With the usual political weasel words, Barack Obama claims this is not a tax increase.
Try telling that to someone earning $60,000 who has just had an extra $50 docked from their first weekly pay packet. 
For it not to be a tax increase, an equivalent cut in income tax would of needed to be applied for the lower paid. Obama didn't do this.

Middle Class Tax cuts that expire and AMT (alternative minimum tax) 

This $215bn a year tax increase affects the middle classes.
AMT mostly affects those on $40,000 to $70,000 with significant tax deductibles.

It was reported that AMT is going to be "resolved", but no details of what this "resolution" might be are available. There is nothing in writing that AMT will be resolved - just a vague political promise.

Again Barack Obama is not counting this as a tax or revenue increase. He is not being honest.

Upper Income Tax Cuts

This $42bn a year tax increase was calculated using incomes above $250,000.
The Bush tax cuts will now only expire for those earning over $400,000 (or $450,000 family income).
This tax increase will be significantly less than the terms of the Fiscal Cliff - around $30bn.

Other Tax increases  

There are small increases to capital gains and dividend payment taxes.
Barack Obama says that the total tax revenue increase is $62bn a year - so we can estimate these tax rises are about $32bn a year.

Carried Interest escaped the threat of being raised and remains at 15%.
http://www.crenews.com/top_stories_-_free/carried-interests-tax-hike-averted-in-fiscal-cliff-deal.html
This is the tax break that allows Mitt Romney to pay 15% or less in taxes. (Along with tax deductible donations to the Mormons.)

Income Tax Summary

Taxes on the poor and middle classes are going to rise by about $200bn a year (with AMT fixed) or $300bn a year (AMT not fixed).

Taxes on those earning over $250,000 will rise by about $70bn a year.   

Corporate Welfare

The cuts in payments to Medicare physicians of $10 bn a year were dropped.

Corporate Welfare was completely untouched by the Fiscal Cliff deal.

There was supposed to be $73bn a year of Corporate tax breaks expiring.
There were $69bn of new / extended Corporate tax breaks included in the Fiscal Cliff bill.

Mostly these were included at Barack Obama's insistence, not the Republicans.
E.G. The $9.4bn Off-shore financing loophole for big banks - Sec 322 is an "Extension of the Active Financing Exception was specifically insisted upon by Obama not the Republicans.
Obama's Corporate tax breaks are bigger than his tax hikes on the rich
http://washingtonexaminer.com/obamas-corporate-tax-breaks-look-bigger-than-his-tax-hikes-on-the-rich/article/2517487#.UOn94G9g9rs

The Republicans got other items of Corporate Pork. E.G. the $70m a year subsidy for Nascar.


The miniscule $24bn (or 2%) of military spending cuts for 2013 have been dropped pending negotiations in 2 months time. They could of found $24bn out of petty cash from the 2012 military spend of $1,219bn.   

Where the other non defense spending cuts of $30bn for 2013 were supposed to come from has never been specified. The Republicans wanted it to come from Social Welfare. This too has been dropped until March.


NONE of the $1tn+ a year of Corporate Welfare was affected by the Fiscal Cliff deal. 

The large subsidies to the oil industry were not touched.
Neither were the special tax breaks or the juicy contracts for the arms industry.
The big pharmaceutical companies are very happy with the fiscal cliff deal. Government gifts to them have not been touched.
Wall St is extremely happy - their subsidies and privileges were not touched.

The current record levels of Corporate profits are to be protected at the expense of a huge tax hike on the poor and the middle classes.
The $1tn+ of annual Corporate Welfare to large Corporations will not be touched.

The income of the top 0.1% is also to be protected.
Most of their income is directly derived from the profits of large Corporations.
Tax breaks like Carried Interest are unaffected.
The rise in income taxes for those earning over $400,000 does not affect the very rich much at all. 

Government Spending

Government spending is planned to rise by 50% over the next 8 years to over $5tn a year.

It is currently about $3.5tn in 2012.
Under sequestration (the supposed draconian spending cuts) government spending rises by $1.6tn to $5.1tn in 2020.
Without sequestration government spending rises by $1.7tn to $5.2 in 2020.

This is what the politicians call draconian spending cuts.
Do you see any cuts?

You can bet your bottom dollar that Social Security weekly payments won't be rising by 50% in the next 8 years.

The government is planning to spend a lot more on Corporate Welfare.

The government is also planning significant rises in military spending from 2012 levels of $1,219bn.

What the politicians and the media are not telling you about Military Spending.
http://ian56.blogspot.co.uk/2013/01/what-mainstream-media-and-politicians.html

At the peak of the cold war - America spent $700bn or less on the military in 2011 constant dollar terms (i.e. inflation adjusted).

Military spending is already 74% higher than the peak of the cold war.
The government plans to take it to over double peak cold war spending in the next few years.



Addendum

See also :-

Fiscal Cliff deal. Why Goldman Sachs won and America lost.
http://ian56.blogspot.co.uk/2013/01/fiscal-cliff-deal-why-goldman-sachs-won.html


It is easy to see how to save over $1tn a year from Corporate Welfare and military spending.
http://ian56.blogspot.co.uk/2012/11/it-is-very-easy-to-cut-1tn-from-federal.html


Update 01/07

Back of the envelope tax calculation :-

The tax hike on middle class tax payers (those earning less than $100,000) is about $200bn a year.
In 2010 there were 67 million people who actually paid any taxes. (Well over 100 million people filed tax returns.)
The vast majority of these 67 million people will be earning less than $100,000, let's say 50 million.

That works out to an average of $4,000 per middle class / marginal tax payer.
Or roughly a 4 % tax hike.

That's why we are seeing reports of middle earners saying they are getting docked an extra $50 a week in additional taxes - or $2,500 a year. That is 5% if that person is earning $50,000 a year. It is 4% if they are earning $60,000.