Fiscal Cliff Deal: An Overview

Scott Sumner breaks down the key points:

Almost all of the press reports on the tax increases are wildly inaccurate. Tax rates will rise much more than advertised, and not just on those making over $400,000. Here are some problems with the agreement:

1. The tax code becomes far more complex.

2. The marriage penalty becomes even worse.

3. There is no reduction in the maximum unemployment benefits, despite the recent fall in the unemployment rate. Every day that goes by a larger and larger share of the unemployed become structural, as our labor market becomes more “European.” I have heard several stories from different people I trust, who describe people they know who are enjoying a long vacation at Uncle Sam’s expense, and bragging about it. That’s not to say most unemployed are doing this, it’s just a minority. Maybe 1% of the workforce. But it is becoming an increasing problem as more and more people figure out how to game the system. Ivy league professors overlook this problem because they don’t socialize with the sort of modest income person doing a crappy job who is tempted by this option, and they can’t imagine anyone they know taking this route voluntarily.

4. There are virtually no spending cuts.

5. MTRs rise for almost all Americans, and by much more than advertised.

6. There is no “lower rates for less loopholes” deal, as had been discussed in the early stages of the negotiations.

Sumner goes on to describe how the deal will affect the average taxpayer. The whole analysis is worth a read.

http://twitter.com/RichardPenney Richard Penney

As with almost everything government does, this fiscal cliff deal can be summed up quickly. This fiscal cliff deal makes people poorer and less free. Absurd spending. Big tax hikes. Almost no spending cuts. How did we avoid a fiscal cliff? We are rapidly approaching economic death spiral mode.
Laura

Can’t get the link to pull up, Tom. Can you doublecheck it? thx
http://www.TomWoods.com Tom Woods

Works all right for me.
Skip ONeill

This is a sad day for America and the future. The silver lining is that silver is up 3%
FarSide.Liberty

I admit I didn’t pay attention as close as I should have the last few months (family issues can focus your attention in different ways) But was this really going to be much of a cliff for us ‘regular’ people? Seems like my taxes are going up one way or another, and the biggest problem of the ‘cliff’ was that the govt would have to cut back.

One of the more absurd commercials I saw last month was wailing that the EPA would have to cut back by 10% or something if there was no agreement (it didn’t say, but I always assume they mean ‘cut in the proposed increase’ whenever someone on tv talks about a ‘cut’).

Sounded good to me…
Dave

They also have the effrontery to call it the “American Taxpayer Relief Act.” I suppose that’s a bit of DC humor, meaning they intend to relieve Americans of more of their earnings.

An alternate name might be the “Republicans Are Absolutely Worthless Act #3853.”
Zach

Thanks for the link to the article, there’s a lot of good info in here. My only complaint is the author’s link to Miles Kimball’s blog post, which seems to contradict my understanding of Austrian economics. He seems to be of the belief that spending is preferred over saving during a recession because this will raise aggregate demand. Or maybe I am missing something?
Dave

The comments are a bit depressing as well, like this one:

“What would a VAT that replaced payroll, individual income, and corporate
income taxes look like? I think this would be the way to go if the goal
is elimination of income taxes.”

I think just eliminating income taxes would be the way to go if the goal is elimination of income taxes.
http://www.facebook.com/profile.php?id=1457760294 Robert Fellner

The author and certainly the guy he linked to are not Austrians, nor are they libertarians. So that may be what you are missing. As you said, Sumner’s analysis of the fiscal cliff is very good, and that is the only thing Tom was linking to here – not an endorsement of his entire worldview.
Pdrum

He said “given fal in unemployment rate” this rate drop is bogus that mean with more or the same peope being unemployment more unemployment benefits theres is more incentive not to get a job.
P_drum

oops more unemployment benefits means there is more incentive not to get a job.
Pdrum

I saw something on Blomberrg that was saying how horrible it’ll be if they cut Head Start
Dan

http://consultingbyrpm.com/blog/2012/12/sometimes-you-should-look-up-the-numbers-fiscal-cliff-edition.html
Darien

Careful, Tom. If Bob Murphy hears you saying nice things about Scott Sumner, there’ll be hell to pay!