On The New Definition Of "Rich", A $620 Billion Tax Hike Offset By $15 Billion In Spending Cuts, And Much More

Tyler Durden's picture

We greet the new year with an America that has a Fiscal Cliff deal. Actually no, it doesn't - not even close. What it does have is an agreement, so far only at the Senate level which voted a little after 2 AM eastern in an 89-8 vote (Nays from Democrats Bennet, Cardin, Harkin, and Republicans - Lee, Paul, Grassley, Rubio  and Shelby), to delay the all-important spending side of the Fiscal Cliff "deal" which "can is kicked" in the form of a 60 day extension to the sequester, to be taken up "eventually", but hopefully not on day 59 at the 11th hour, the same as fate of the all important US debt ceiling, which remains in limbo, and which now effectively prohibits America from incurring any new gross debt as the $16.4 trillion debt ceiling was breached yesterday. In other words, America's primary deficit sourcing mechanism is now put on hiatus, and all new net debt will come at the expense of defunding various government retirement funds as the 60 day countdown to the real showdown begins: the debt ceiling, as well as the resolution of the spending side of the Fiscal Cliff deal.

What did happen last night was merely the legislating of the inevitable tax hike on the 1%, which was assured the night Obama won the presidential election, something not even the most rabid Norquist pledge signatories had hope of avoiding. This was the first income tax hike in nearly two decades. A tax hike which, regardless of how it is spun, will result in a drag in consumption. It was also the brand new definition of rich, with the "$250,000" income threshold now left in the dust, and "$400,000 for individuals ($450,000 for joint filers)" taking its place. If you make more than that, congratulations: you are now "rich".  You will also be hated for being part of the 1%. and be the target in the ongoing class war.

Who knew that "New Normal" would also bring us the "New Rich" definition.

Ironically, not even the tax hike component of the deal was fully worked out, as it still remains unclear just what the new tax brackets and what the tax increases for the much maligned 1% will be.

What is generally known is that the Senate bill boils down to the following: $620 billion in tax hikes over the next decade offset by $15 billion in spending cuts now. Hardly "fair and balanced." Anyone who, therefore, thinks this bill is a slam dunk in the House is a brave gambling man.

The said, the "good news" is that 99% of Americans will see no change in their taxes, as was the idea all along. And the evil 1% will get their just deserts, which was the whole purpose of this relentless soap opera

The bad news is that starting today millions of wage earners, will see a smaller paycheck as a result of the lapse in the 2% payroll-tax cut, enacted in 2010, which lowered the employee portion of the Social Security tax from 6.2% to 4.2%. 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.

That's just the beginning. The WSJ details the various other implications of the expiration of the payroll tax cut:

It will take up to four weeks after a bill is passed for many workers to know exactly what their 2013 take-home pay will be, according to Michael O'Toole, an official of the American Payroll Association, a group of 21,000 payroll managers.


Just before midnight, the Internal Revenue Service issued new withholding tables for 2013 reflecting the expiration of the 2001-3 tax cuts and the two-percentage point Social Security tax cut. But the IRS noted that the tables might change given pending legislation.


The 2013 tax-filing season also is likely to be disrupted by Washington's wrangling on deadline. In November, acting Internal Revenue Service Commissioner Steve Miller warned that the filing season would be delayed by several weeks. Normally the season opens in mid-January, but this year it may be delayed till mid-February or later.


As a result, many filers won't be able to receive tax refunds as early as they normally do. "Congress's delays have pushed back the repayment of interest-free loans to the government for millions of taxpayers," said Lawrence Gibbs, a former IRS Commissioner now with the Miller & Chevalier law firm in Washington. The average refund is approaching $3,000, according to IRS data.

So very much still remains unknown. Here is what is known on the tax side of the "deal":

Income-tax rates. The top rate on ordinary income such as wages for joint filers earning more than $450,000 ($400,000 for single filers) would rise to 39.6%. Current law would be permanently extended for income earned below that level. Left unclear is whether the $450,000/$400,000 threshold refers to adjusted gross income (AGI) or taxable income. AGI doesn't include subtractions for itemized deductions, while taxable income does.


The individual income tax is the government's biggest single source of revenue, supplying nearly half the total.


Investment tax rates. For joint filers with income above $450,000 ($400,000 single), the top rate on long-term capital gains and dividends would rise to 20% from 15%. For taxpayers earning less than the thresholds, there would be a permanent 15% top rate on long-term capital gains and dividends, except perhaps for the lowest-bracket taxpayers, who currently have a zero rate.


Alternative minimum tax. The bill permanently and retroactively adjusts the alternative minimum tax to stop it enveloping more taxpayers than designed. The current fix expired at the beginning of 2012.


PEP and Pease provisions. The deal restores and makes permanent two backdoor tax increases for joint filers with incomes above $300,000 ($250,000 for singles).


When it was last in effect, the Personal Exemption Phaseout reduced or eliminated the value of personal exemptions for taxpayers earning more than the income threshold. The Pease provision—named after the late Rep. Donald Pease (D., Ohio)—reduced itemized deductions for taxpayers above a certain threshold. The formula's net effect was to add a bit more than 1% to the top tax rate, says Mr. Williams of the Tax Policy Center, including the top rate on capital gains.


Estate and gift tax. The estate and gift tax exemption would remain $5 million or more per individual vs. the $3.5 million sought by President Obama. But the current 35% top tax rate on amounts above the exemption would increase to 40%.


Tax "extenders." This term refers to several provisions that lapsed either at the beginning or the end of 2012. They would be extended for varying periods, and provisions that expired in early 2012 would be extended retroactively. Among these provisions are deductions for $250 of teachers' classroom expenses; state sales taxes in lieu of state income taxes; tuition and related expenses; a conservation donation benefit; and the direct charitable contribution of up to $100,000 of IRA assets for people 70½ and older.


The deal would also extend for five years the American Opportunity Tax Credit; for many taxpayers this dollar-for-dollar credit is worth up to $2,500 and therefore the most valuable education benefit. And it would extend for five years the current versions of the Child Tax Credit and Earned Income Tax Credit, which are claimed by many lower-income workers making up to about $50,000.


Depreciation. A one-year extension of current "bonus" depreciation rules, which allow businesses to deduct up to 50% of the cost of a wide variety of property and equipment, excluding real estate. "This will be very helpful to a lagging economy," says Don Williamson, an accountant who also heads the Kogod Tax Center at American University.

In other words: congratulations America, you have a Fiscal Cliff deal. Oh sorry, no you don't. But it does make for even better political grandstanding and melodramatic theater.

And now, we look forward to late February, early March, when as we said all along, the real showdown will take place, one which the market will no longer be able to avoid.

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bigbwana's picture

Come to Canada. During the Vietnam war we welcomed the dodgers with open arms. We told your government to **** OFF when they demanded no asylum be provided.  We got crooked politicians, just like you, but we got three gangs of croks, not two, so shitting on us ain't so easy. Come on up, bro! 

Jreb's picture

It's a good idea bigbwana. We should pressure our government to kick open the doors for productive freedom loving Americans and to establish firewalls top keep the IRS and their buddies out.

On the other hand it would also be nice to put a guy on Uranus just for shits and giggles... about the same odds really. Our government is in bed with theirs and the banker kelptocracy. Ain't nothing gonna happen until the plebs make it happen. 60 guys posting to ZH on New Years day do not consititute a movement. Speaking of movements.... too much coffeee. Happy New Years all!

bigbwana's picture

Americans, you should be ashamed. You got a brother asking for help, and you ignored him. I'm a Canadian, thank ****, and know ****all about your tax. Help this man. Help him **** the bastards trying to screw him!

Jreb's picture

There is nothing they can do for this guy. They have all the power. We have none. Yet.

My adivse - if you can do it (I can't because of a business, kids etc) is pay the bill and drop out of the system.

Lot's of great web sites to show you how.

For what it is worth I just got hit with a similar bill from Revenue Canada for a mistake my wifes enmployer made on her T4. 2 weeks before Christmas we get smacked with a tax bill for thousands plus interest for a mistake we never made. Merry Christmas eh?

You have my sympathies.

Good luck.

Room 101's picture

+1 Bigbwana.  I don't understand the culture sometimes.  Make that most of the time.  And while I like ZH it can be like a Heaven's Gate convention. 

We seem to be too busy bemoaning our collective fate to spend a few moments to do something useful or helpful.

It ain't gold, it's actionable information, bitchez.

Rainman's picture

The CA FTB is infested with incompetence. For that very same tax year, I received a similar letter informing me I owed over 5 grand with penalties and interest. Long story short...turns out the keypunch operator credited my on-time payment to a different SS# that was one digit off from my own. It was a monumental, time-wasting goat fuck to straighten it out.

Good luck.



Osmium's picture

Call me weird, but I have tax returns for every year since 1978.

Winston Churchill's picture

A warning on keeping tax returns past the seven years.

The IRS can and will go back as far as there are records ,to recoup taxes owed.

Happened to a friend of mine who took over the family business.

They went back to 1936 because the records were there,and bankrupted the company

with tax and interest owed.

Room 101's picture

You left the state as of 2004, correct?   So how can you owe income tax to the People's Republic of Californication for 2005 if you didn't maintain a presence or earn income there? My first inclination would be to appeal it, but that is going to cost money if you hire an attorney.  Perhaps more than the amount in question.  When they sent you a letter, they probably detailed some sort of administrative appeals procedure.  Look that up and pursue it in that fashion would be my suggestion. Provide evidence that you left the state and no longer had income from there after 2004 and I'd think you'd be OK.  But you never know. If they've gone full renegade, their response might be: so sue us.   

As for the penalties; that's how they get you.  The tax itself is often a small amount but the interest and penalties eat you up.




I hope I've provided some actionable information that you can use. 

bank guy in Brussels's picture

Tho we have a lot of political farce in Europe with dozens of languages and cultures in the EU

Americans are showing they can do world-class farce even in one country

smacker's picture

hhmmm. Methinks Barreloso and the Garden Gnome surely provide the best galactic farce available. Barreloso: "the future of Europe is too important to be left to democracy".

Ben Dover's picture

Look at how democracy has been working to solve this problem. Then think "Hey, maybe he's right!"


smacker's picture

Well, in the UK anti-EU-ism is higher than it's ever been. But we must not ignore that our PC Lefty MSM never report outrageous comments like this made by the unelected EU elites like Barroso and Rompuy, so few people are aware of them. But they are just the twin talking heads of the EU snake...there's plenty more like them hiding in silos waiting for the day when they assume full power and create a new country called the United States of Europe.

As far as the rest of Europe, it's long been more socialist than the UK and the idea of a united Europe always sounded like a good idea to them. Little do they know what was/is planned for them by their socialist masters.

HL Shancken's picture

Excellent comments, and anyone interested in the EU must watch the short Vladimir Bukovsky Youtubes on the subject, as you probably have. Then, expand on that by reading the short article by Jeff Nyquist, who introduces a concept that virtually noone accepts as the truth but which nevertheless appears to be exactly so. It is the third link in this reply.







smacker's picture

Thanks for those links. Vladimir Bukovsky got it absolutely right. A growing number of us see close parallels between the old Soviet Union and the new EUSSR. Not surprising really, given that many of the top unelected EU-crats are ex-commies or quasi-fascists of the old post-WWII order, who undoubtedly lament the passing of their beloved totalitarian jackboot states. Barroso = an ex-Maoist.

The third link you provide containing an article you quote from Jeff Nyquist contains some serious food for thought. His claim is further strengthened by the crash of 2007-8 which some people believe was always a deliberate plot to destroy western economic power, global western influence, and to open the door to the rise of totalitarian government.

Has it all been orchestrated from Moscow? or is it a slightly different plot enacted by the ranks of International Socialists? It probably isn't important given they're all in cahoots, as very well explained in that excellent book True Believers which I read a while back.

At least one person I know is utterly convinced that the UK BoE Governor (Mervyn "King of Inflation") is in the pay of Moscow along with his ex-Prime Minister crony Gordon Brown (a known Marxist and ex-student of communist political ideology). It's the only rational explanation for how they engineered the wrecking of the UK economy. And of course the current Leader of the UK Labour Party is Ed Miliband, who's father was a Jewish Marxist immigrant.

The plot thickens.

One wonders when the purges of intellectuals will begin...

This article posted by another commenter further up/down this thread is also very interesting: http://www.caseyresearch.com/articles/ascendence-sociopaths-us-governance  It's of relevance given that all the communist/fascist despots of the 20th century were psychopaths.

CDSMonkey's picture

Agreed. This has been an exceptionally pathetic display by america

post turtle saver's picture

As opposed to the rest of the world, who's just knocking it out of the park as of late <eyeroll>

My European in-laws have a saying, "when you point a finger, three are pointing back at you".

disabledvet's picture

"May the Farce be with you too." I find it fascinating that "I get my news at Zero Hedge" now. The big change in the States is that while newspapers are referenced having read them on my phone today I found "the coverage" to be awful. "Turn it off" is now how Americans deal with "the Garbage." The irony of course is that ZH is a throwback to "simple reading" ... with a lot of anger and pent up rage thrown in of course. "The Devil is in the details" and unless and until I see "what got snuck in" ... which hopefully the House will show but probably not I am certain what we all are getting here is merely part of the story. Hence "the problem with rage." You miss the "sneakers" while you're raging. Anywho great send off to last year...I still don't see anything to derail this A train. The S & P was OUTSTANDING three years running now. Raising the payroll tax is the right thing to do (that's MY Social Security check.) I know all my jobless and homeless Republican friends cannot stand the idea that they might have a retirement check due them...I'm sure they'll live to destroy themselves another day. We'll see how the spending side of the ledger goes. Looks like we just elected Joe Biden as President as well. Didn't see that coming. Now off to Syria folks!

Waterfallsparkles's picture

I am extremely disappointed in the Republicans trying to balance the Budget on the backs of the Seniors.  They need to get off this Chained CPI for Social Security and means testing Medicare.  Or they will never get elected again.

We have to remember that Social Security and Medicare are contributory.  It is like you have put money away in your Pension and then they want to take it away.

I knew that Romney would lose when he made Ryan his VP pick, after Ryan went after SS and Medicare, in his so called Budget plan.

Now even though the Republicans lost due to the push to change SS and Medicare they are still trying to jam it down Seniors throats.  They are picking on the Weakest of our Society.

We have to remember that most of the Debt that has recently been accumulated has been given to the Banks to sure up their balance sheets.  Yet, there is nothing that anyone is doing to try to Tax the Banks to help balance the Budget.  Just on Seniors who did nothing to increase the Debt.

tango's picture

NO NO NO.  Our debt is almost entirely due to the meteroic rise in social spending over the past 50 years.  Compare the 50's and 60's when social spending was below 20% (and defense near 50%).  We do not have this problem because of (1) Bush tax cut, (2) Evil bankers or emphasis on SS or Medicare.  And yes, Seniors did increase the debt by electing politicians who told us we could live beyond our means forever without consequences.

cynicalskeptic's picture

It's not just the spending alone, it's how we create the moeny we spend.    We're paying INTEREST on all the debt we build up.......   nobody seems to get that.  If we simply printed more money instead of issuing T-Bills and paying interest on them (even at the current pathetically low rates) we'd be in FAR better shape -  still in edebt but nowhere's near as much.

If you're gonna live off debt by creating more moeny out of thin air - why pay interst for the privilege of creating more moeny?

Matt's picture

The theory is that the debt ceiling and having to pay interest on debt keeps the rate of growth in the money supply suppressed. That is to say, if Congress could just print money out of thin air, inflation would be much, much worse.

jekyll island's picture

They have to be careful.  I was watching a documentary about JFK yesterday and still can't figure out how his skull and brains end up on the trunk of the limo when he was shot from behind.  If the prez doesn't do what his handlers tell him he gets acute lead intoxication and a new Warren comission saying " single shooter, single bullet".  The fantasy has been going on for decades.  

Waterfallsparkles's picture

There is a video on Youtube which implicates the Driver of the Car. Makes you wonder if Jackie was climbing out of the Limo because the shot came from within.

I have no opinion but the Assassination is still what seems an unsolved Mystery.

HL Shancken's picture

Anyone with any interest at all in the JFK assassination owes it to himself and indeed the whole world to read Ion Mahai Pacepa's book on the subject, Programmed To Kill. If enough people were to read this book this nation could finally come to the sobering conclusion that our President was assassinated by an agent of the USSR, and perhaps this would lead to a change in the weather in Moscow. Because if not, we are going to get a big change here, and sooner rather than later. It was no small feat for the Soviets to kill our President, and to have gotten away with it was surely a master stroke by ture masters at the craft of subversion and manipulation. Can they be blamed for feeling Godlike, for expanding their programs and pushing the envelope, such as they did on 9-11? They got away with killing the President of the United States. Is there anything of which they are not capable? At this point in time I don't think so.

Water Is Wet's picture

FISCAL CLIFF DEAL!  Remember all those websites that posted about this garbage incessantly, and in the end the politicians just kick the can like they always do.  Drama queens...

buzzsaw99's picture

the whole thing is as exciting as nancy pelosi's saggy tits

Whatta's picture

geebus, thanks a lot.  to wake up to that mental image.....where is that champaigne bottle again?

post turtle saver's picture

She has fun bags, they're just under her eyes.

smacker's picture

The political elites' desire to close their irresponsible funding gaps thru taxation and borrowing, but not spending cuts, is as strong as ever.

ptoemmes's picture

Income-tax rates. The top rate on ordinary income such as wages for joint filers earning more than $450,000 ($400,000 for single filers) would rise to 39.6%. Current law would be permanently extended for income earned below that level. Left unclear is whether the $450,000/$400,000 threshold refers to adjusted gross income (AGI) or taxable income. AGI doesn't include subtractions for itemized deductions, while taxable income does.

NOTHING in politics is permanent as long as at can be overturned/changed by subsequent law. I realize that is how things work. The tax code needs an entire rework and simplification, but that is probably unlikely (now). I think the government needs an entire rework and simplification, but that too is unlikely unless...

The legislators in DC, Obama-Biden, and oh heck the Supremes too ought to be individually and collectively ASHAMED of themselves, but I know that is a state of being that they are immune to.

Happy New Year anyway,


Cursive's picture


Ashamed?  You have no idea of the arrogance of our ruling class.

smlbizman's picture

why drag diana ross into this.....

Apathetic or Whatever's picture

<font color = red> red </font color = red>

abgary1's picture

($620 billion/10 years) + $15 bilion is not even close to $1 trillion.

Deficits and debts matter.

HurricaneSeason's picture

It's the thought and low interest rate and only one treasury bond customer that count.

Vendetta's picture

I thought Cheney said deficits don't matter  ... I'm confused /snarc off

malek's picture

And Sveriges Riksbank clown Paul Krugman agrees - he just states it differently, to not be confused with those evil Republicrats /snarc off

Matt's picture

Deficits wouldn't matter as long as tax reciepts grew faster than interest payments. Surprisingly, tax revenues have not kept up.

Water Is Wet's picture

LOL, buzzsaw +1.  What retardation were you even attempting?

buzzsaw99's picture

{style = FAIL} FAIL {/style = FAIL} ;)



nmewn's picture

"Who knew that "New Normal" would also bring us the "New Rich" definition."


Forward you socialist pricks, its not just for millionaires & billionaires anymore ;-)

Boilermaker's picture

PSSST:  The house will pass it also.  It's a bullshit farce.  That is all.  Pass it on.