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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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Tue, 01/01/2013 - 11:07 | 3111900 SeventhCereal
SeventhCereal's picture

It's really past the point of going into minute details, it is a mathematical certainty that this is going to end badly.  Fortunately, I get paid to wait and am accumulating tremendous cash reserves.  When the time comes it will be an opportunity of a lifetime.  Those with cash shortages and stuck in illiquid assets will bear tremendous losses.  This kind of a wealth transfer happens literally once in a lifetime.  Pay attention.  I cannot wait.

Tue, 01/01/2013 - 12:01 | 3112049 Bobbyrib
Bobbyrib's picture

You must be politically connected, or you just don't understand the times we're living in in this country.

Tue, 01/01/2013 - 13:13 | 3112239 Calmyourself
Calmyourself's picture

No, no let me guess...  A male prostitute buying rental real estate, right?

Tue, 01/01/2013 - 13:19 | 3112255 Cthonic
Cthonic's picture

 "Those with cash shortages and stuck in illiquid assets will bear tremendous losses.  This kind of a wealth transfer happens literally once in a lifetime."

Sums up 2008 in a nutshell.  Your point?

Tue, 01/01/2013 - 21:45 | 3113509 Matt
Matt's picture

2008 was nothing. Buying a skyscraper for the cost of the elevators is the real deal.

Tue, 01/01/2013 - 11:08 | 3111903 Room 101
Room 101's picture

We sure are hanging on the latest pronouncements, aren't we?  

Here's some actionable information, bitchez.

Water purification:  you can't stack or ponder the latest implications of Fed policy if you're laying in bed, shitting your guts out due to cholera.  For purifying water, probably the fastest way to do so is to use plain household bleach. No additives or perfumes, mind you.  And bleach does expire over time so rotate your supply. For cloudy water use 16 drops of chlorine bleach per gallon.  Clear water, 8 drops.  Stir thoroughly and let sit for 30 minutes. To get rid of the chlorine smell, pour from clean container to clean container.

Tue, 01/01/2013 - 21:48 | 3113515 Matt
Matt's picture

Any tips on saline solution for intervenous hydration in case of cholera?

And does a sealed jug o chlorine still seep out somehow? There must be a way to safely store it in bulk for long term.

Tue, 01/01/2013 - 11:11 | 3111911 Cursive
Cursive's picture

As long as the debt ceiling is still in place, all else is noise.

Tue, 01/01/2013 - 11:33 | 3111970 viahj
viahj's picture

Yes, the debt ceiling fiatsco is where the real action should be.

Tue, 01/01/2013 - 11:39 | 3111985 TerminalDebt
TerminalDebt's picture

They'll raise the debt ceiling to 19T at the last minute and it will all be forgotten for another 2 years again.

 

Tue, 01/01/2013 - 11:11 | 3111912 williambanzai7
williambanzai7's picture

KICK THE CAN

Tue, 01/01/2013 - 11:27 | 3111947 dogfish
dogfish's picture

Thats has to be a new can,because no can can be kicked that many times.

Tue, 01/01/2013 - 12:57 | 3112204 Vendetta
Vendetta's picture

new can, same boots and same road

Tue, 01/01/2013 - 12:42 | 3112167 gould's fisker
gould's fisker's picture

Art of can kicking--when there's no other tenable option and kicker doesn't get hurt in any way--kick away.  Congress cannot let the tax hikes for all come into effect because it will bring down a political firestorm from public, eventually (endangering their seats), and taxes across the board will depress current subdued economic activity.  Delay sequester ='s preservation of raft of congressional sponsored programs.  Fiscal options = none that are viable besides vigorous kicking.  Political Solution = kick with vigor and spin as problem solving.  Public returns to its screens of varying sizes/Politicians can pretend for another 2 months that they sit atop a viable enterprise and can continue business as usual.  Everybody wins!!! For now.

Tue, 01/01/2013 - 11:13 | 3111918 working class dog
working class dog's picture

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

The facists corporations in collusion with the Fed fiat banking system and the gubbament along with ear marks, pork barrell, look the other way regulators, and a dung pile of federal codes along with the PARASYTIC lawyer industry.  make up the biggest drawn down of gubbament funds,

 

get rid of the fed. and the black hand IRS and you will see sanity return to the financial system, and hey maybe the corps. that are getting a free ride will finally have to man up and produce something besides a team of lobbyists to suck off the federal budget. Do away with the idea of corporstions and return to private all in risk businesses.

Tue, 01/01/2013 - 12:07 | 3112072 HurricaneSeason
HurricaneSeason's picture

It's called "goobermint". You remember Goober, don't you? I think he died last year.

Tue, 01/01/2013 - 13:56 | 3112336 Waterfallsparkles
Waterfallsparkles's picture

Would be interesting if everyone that objects to all of the Government spending increased their Dependents to 9 this year.  Starve the Beast.

Of, course you would have to put the Money away for Tax time.  Would not want to get caught short with the IRS Gestapo.

Tue, 01/01/2013 - 11:18 | 3111920 blunderdog
blunderdog's picture

    This was the first income tax hike in nearly two decades.

So...are you saying this ISN'T just the expiry of temporary tax-cuts?  That looks like the Clinton-era rate.

     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,

Isn't that a payroll tax HIKE?  Why not?

Tue, 01/01/2013 - 11:36 | 3111975 Everybodys All ...
Everybodys All American's picture

Social Security is funded by this tax. The cut in this tax was one of the dumbest moves made by Congress and Obama and was never pointed out by anyone as such. They have moved up the financial collapse of Social Security to 2019 from 2030. This is so typical of the Obama administration policies. Once again most people are so short term focused and quite frankly stupid to not see the big picture.

Tue, 01/01/2013 - 12:01 | 3112055 blunderdog
blunderdog's picture

I'm just pointing out a very strange double standard. 

I couldn't care less about who does what with which specific tax-rates--it's all the same to most folks, and it's never going to cover Fed spending.

Tue, 01/01/2013 - 12:35 | 3112151 francis_the_won...
francis_the_wonder_hamster's picture

"Isn't that a payroll tax HIKE? Why not?"

Because they passed it after midnight.  Two hours earlier it would have been a tax hike.

Tue, 01/01/2013 - 11:22 | 3111921 booboo
booboo's picture

See, moving from a Constitutional Republic to a DemoCrazy to a not so benevolent dictatorship in three easy steps, almost there, one more push, breath, breath, sluraaaap. IT'S A, AHHH, OH MY GOD WHAT HAVE WE DONE!!!! PUT IT BACK, PUT IT BACK!!!

Tue, 01/01/2013 - 11:18 | 3111923 Marley
Marley's picture

Happy New Year.  We've made it through the financial collapse, Mayan Apocalypse and now the Fiscal Cliff.  All in the span of a few weeks.  But hey, those build ups, a several years for the impending financial collapse, at least two years for 2012, and 45 days for The Fiscal Clifftm .

I was blue, just as blue as I could be
Ev'ry day was a cloudy day for me
Then good luck came a-knocking at my door
Skies were gray but they're not gray anymore

Blue skies
Smiling at me
Nothing but blue skies
Do I see - Irving Berlin

 

 

 

"Ever feel like you've been cheated"?  - Johnny Rotten

Tue, 01/01/2013 - 11:17 | 3111925 MyBrothersKeeper
MyBrothersKeeper's picture

Good article Tyler.

Also, apparently, part of the "revenue" plan includes giving people the option of converting their IRA to a ROTH IRA...thus paying the tax now and never (in theory anyway) having to pay tax on any gains going forward.  This has been available with some restrictions.  It will be interesting to see what the rules are and at what rate people would be taxed. source: Fox News

Another absurdity is the deal states than any eventual cuts in sequestration would be matched by more revenue 1-1 (ie more taxes).  The Dems will, of course, try to tie the sequestration to the debt ceiling so they can hold up the "national security" baby. The GOP should make sure those things are negotiated on seperatly.

The 615 B to 15B in sepnding cuts is absurd. And combined over 10 years it is an absolute joke relative to debt trajectory.  As mentioned, tax increases are always a drag on gdp and almost always amount to less net tax revenue than more.  As I posted in another thread, the UK added a wealth tax for 2012 expecting to bring in much more revenue. According to the Telegraph, year over year tax revenue actually declined significantly for the first month that data became available.

The only good thing to come out of it is the long-term care portion of Obamacare was to be eliminated as it has no funding mechanism.

I agree that I wouldn't be betting my house that the House will pass this joke of a bill.  I think there is a better chance they will send the bill back to Senate with amendments...after all if the Senate only got 8 "no's" the House GOP has some leverage in not killing the bill by modifying it.  Finally kudos to Rubio, Paul etc for voting no.  The only Dems to vote against it said it didn't go far enough with tax increases...go figure.

Tue, 01/01/2013 - 13:48 | 3112324 tango
tango's picture

"...tax increases are always a drag on gdp and almost always amount to less net tax revenue than more."    So true!  And another aspect of tax increases is that it doesn't matter whether it is on upper or lower income.  If low income, less trash will be bought.  If high income, less investment, capital formation and charity giving will follow.  Many ZH posters think taxes from the "rich" don't matter but they do - it's throwing more into the DC black hole of waste, welfare and debt that could be used for productive enterprises.  In the end, this is worse than a joke.

Tue, 01/01/2013 - 11:19 | 3111928 Salon
Salon's picture

It will pass.

All they need is 10 republican votes right?

There are more than ten RINO's in the house

Tue, 01/01/2013 - 11:26 | 3111934 Monedas
Monedas's picture

Obama taxes corporations so much .... they no longer can sponsor floats in the Rose Parade in Pasadena .... government agencies to the rescue .... IRS has a huge, ivy covered dollar sign float .... reminding tax payers to file early .... and often !       Monedas     1929       Comedy Jihad Yen Cross Stuck All Nite At Burbank Airport World Tour

Tue, 01/01/2013 - 11:25 | 3111938 Husk-Erzulie
Husk-Erzulie's picture

And now a word from one of our nations revered academics.  Piled higher and deeper than ever before thought possible.  Brought to you by the MSM rag "of record".  Just another in a series of fucktard memes getting pushed hard at the programmed right now.  Bizzaro World.

Books

Louis Michael Seidman, Geoffrey R. Stone, Mark V. Tushnet, Cass R. Sunstein & Pamela S. Karlan, The First Amendment (New York: Aspen Publishers 4th ed. 2012).

Sleeeep Bitchez...

Tue, 01/01/2013 - 13:15 | 3112233 Cthonic
Cthonic's picture

JFC

Louis Michael Seidman, a professor of constitutional law at Georgetown University

They say familiarity breeds contempt...

Tue, 01/01/2013 - 11:25 | 3111939 Grin Bagel
Grin Bagel's picture

Re: Room 101

 

Thank you from beautiful Valdivia in the Los Rios Region of Southern Chile. Yesterday I gathered H2O from a spring fed waterfall out on the coast as the cabin that I rent has lots of algea in the water system and it is being treated locally with chemicals so that even my dog won't drink it.

 

The synchronisity of your offering just cements my appreciation of ZH.....and fuck tha' trolls.

Tue, 01/01/2013 - 12:28 | 3112095 Atomizer
Atomizer's picture

Re: Room 101

 

So what does the US fiscal cliff have to do with Southern Chile & the shitty cabin you rented? Your poor water supply is not our problem, take your issues up with the socialist water department regime in Chile.

 

Tue, 01/01/2013 - 13:53 | 3112333 Room 101
Room 101's picture

You're very welcome. I'm happy to provide actionable information.

You might also want to take a look at getting yourself a Berkey water purification system.  Pricey, but you can filter a whole lot of water with one.  You can buy them on e-bay.  Also, for a really cheap system in a warm climate, look at going SODIS (you can read about it online).  Basically you just take water, put it in clear, used plastic water bottles and put them out on the roof for the day (has to be sunny/warm).  It'll kill the pathogens.  

Tue, 01/01/2013 - 15:03 | 3112480 Atomizer
Atomizer's picture

With a quick key stroke on Google, it appears you advertise with Prison Planet. What a shame you are to advertise a product on the ZH forum. Beware of XXXX my friend.

Tue, 01/01/2013 - 20:27 | 3113247 Room 101
Room 101's picture

Say what?  I'm not in the water purification business nor do I read the PP website.  I don't care for Alex Jones, either.  I'm happy to pass the water filtration tip along to those who might be able to use it.  

To save you further speculation, I also don't own a liquid bleach franchise nor do I sell empty plastic bottles usable for SODIS. Both of which I've mentioned on this thread as well.

Tue, 01/01/2013 - 11:26 | 3111942 Translator
Translator's picture

Yep, "Obama and Romney are exactly the same"

 

 

I mostly blame Stupid Dumfux like 'Tyler' for printing such pro O'Bowel rubbish, and the dumfux who voted for Ron Paul or some other '3rd Party' candidate. You dumfux swallowed the liberal media propaganda hook line and sinker. Yep both parties are exactly the same....

 

stupid fucktards

 

The lazy freeloading niggers were the only group who voted sensibly, re-electing their Welfare King actually took some brainpower on their part......

Something many of you have little of.......

 

 

Thanks ZeroHedge, for helping elect O'Bowel and helping take down America another notch.

Tue, 01/01/2013 - 11:33 | 3111967 adr
adr's picture

I downvoted you for saying that it took brainpower for the blacks to vote for Obama.

None of them actually vote. The lever is pulled for them.

Tue, 01/01/2013 - 11:44 | 3111994 Savyindallas
Savyindallas's picture

You are really a dumbass-and a racist disgusting dumbass at that.

Tue, 01/01/2013 - 11:49 | 3112011 Monedas
Monedas's picture

He's a breath of fresh air amid all the bowel gas !

Tue, 01/01/2013 - 11:53 | 3112021 Savyindallas
Savyindallas's picture

and by the way- How'd you like Bush and the Republican Congress from 2000 to 2007 giving us a ruinous Medicare prescription Bill, doubling the Department of Education with the worthless "No Child Left Behind" , their pork-laden, boondoggle Energy and Transportation Bills, wasting trillions on ruinous wars that were contrary to our national interests, plus the Orwellian police state with the patriot Act, torture -reigniting the Cold War  -corporate cronyism (or Fascism as some call it) --Yes I sure miss the good ole days of the Republicans

Tue, 01/01/2013 - 11:56 | 3112034 Savyindallas
Savyindallas's picture

And remember  -we had our first trillion dollar deficit in Bush's last year  -and half trillion dollar deficits while the housing bubbble was in full swing. Of course, everything I mentioned above is just as bad if not worse under Obama  -and we are the dumbasses for voting for Ron Paul instead of for another Republican crony capitallist fascist?

Tue, 01/01/2013 - 12:22 | 3112109 HurricaneSeason
HurricaneSeason's picture

Well, that's kind of a negative way to look at it.

Tue, 01/01/2013 - 12:06 | 3112071 Bastiat009
Bastiat009's picture

Translator, if I understand you well, you blame the people who voted for Obama and the people who voted for Romney and the people who didn't vote for any of them. You don't make much sense (style and substance). 

Tue, 01/01/2013 - 12:25 | 3112115 HurricaneSeason
HurricaneSeason's picture

I don't think he's blaming people that voted for Romney, just the republicans that voted for Ron Paul and The Easter Bunny.

Tue, 01/01/2013 - 13:15 | 3112246 malek
malek's picture

I've seen better trolls.

Tue, 01/01/2013 - 11:27 | 3111944 Everybodys All ...
Everybodys All American's picture

I'm done with Mc Connell. Anyone that's been in his job for this long is part of the problem to begin with are they not? Clearly he is no different than Biden or any other democrat in many respects. For Gods sake give me Dario Franchitti's wife. At least I'd respect her movie career.

Tue, 01/01/2013 - 13:07 | 3112223 sunnyside
sunnyside's picture

I respect her boobs.  They are better than McConnell's.

 

Tue, 01/01/2013 - 13:07 | 3112224 sunnyside
sunnyside's picture

I respect her boobs.  They are better than McConnell's.

 

Tue, 01/01/2013 - 11:28 | 3111950 rwe2late
rwe2late's picture

 Are there not also new 2013 Obamacare taxes, and not only on the wealthy?

 http://www.forbes.com/sites/sallypipes/2012/12/25/in-2013-millions-of-americans-face-obamacare-tax-hikes/

 

Tue, 01/01/2013 - 12:39 | 3112040 Everybodys All ...
Everybodys All American's picture

$100 million in annual new taxes for Obamacare. A nearly 4% added tax on capital gains and dividends will help fund Obamacare. This is a tax on all capital gain transactions btw. Dividends will be taxed at nearly 19% under current law. What was passed by the Senate last night would bring it to almost 25% in total. By the way this is just one of several tax increase coming in 2013 alone for funding Obacare. Yeah Biden that's a pretty big f'ing amount. Jerks.

Tue, 01/01/2013 - 11:31 | 3111960 adr
adr's picture

So if you make over $450k in actual earned income you get taxed at 39.9%. Plus all the other taxes.

If you make over $400k in unearned income from investments, corporate fleecing, and gambling in the Bernanke Casino. You get taxed at 20%. Of course there will always be the offshore accounts and fake corporations to make sure a couple million in capital gains never makes it over the individual $400k limit.

OH YEAH, THAT'S FAIR.

You know the bill is always going to be written to favor the wealth without labor class over everyone else.

Tell me again why anyone actually works anymore?

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