The Actual Fiscal Cliff

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Well the so-called Fiscal Cliff was avoided through the mechanism that I predicted back in November:


What will happen I suspect is that the fiscal cliff will be avoided through taxes increasing on “the rich”, that will produce revenue that amounts to a rounding error in today’s federal budget, with completely illusory spending cuts.  In short, the can will be kicked down the road.  Unfortunately for the nation, the end of the road is almost here.


85 Republicans in the House voted for the Fiscal Cliff deal, and 151 voted against it.  The Deal passed courtesy of 172 Democrat votes in the House.

The main  terms of the agreement are as follows:

1.  The Bush tax cuts were made permanent for single filers below 400,000 and married filers below 450,000.

2.  The Alternative Minimum Tax has been permanently fixed by adjusting it for inflation.

(I would note that these portions of the deal should be considered as victories for the GOP.  Permanently extending the Bush tax cuts for 98% of the population takes away from Democrats the opportunity to use this as a stick against Republicans.  The Republicans have fought for a permanent inflation fix to the the Alternative Minimum Tax since it was first proposed in 1969.)

3.  Yet another showdown over mandated spending cuts was set up for two months down the road.

4.  The tax increases on those earning over 400,000 for single filers and 450,000 for married couple will bring in an estimated 35 billion a year.

5.  Capital gains tax will go from 15-20 percent on those earning 400,000 for single filers and 450,000 for married couples.

6.  The Estate Tax goes from 35%-40%.  (The estate tax only applies to estates over five million dollars.)

7.  Factoring in the estate tax increase and the capital gains tax increase estimated additional taxes come to 60 billion a year.  For comparison purposes the deficit last year was 1.2 trillion dollars.

The argument about taxes as indicated in regard to number 7 was much ado about nothing.  If the Bush tax cuts had been revoked for everyone the additional taxes per year would have been in the range of 370 billion dollars, but there is clearly not the political will to do that.  Only radical spending cuts will prevent us from going off the real fiscal cliff, and the election last November ensured those will not happen.  So we just had a lot of Sturm und Drang political theater that signified nothing as far as the real debt crisis confronting the nation is concerned.






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  1. Folks,

    I am not trying to change the subject of this post, but I cannot resist asking: how much of the revenue from this fiscal crisis bill, if any, will go into making our country energy independent, thereby relieving us of the burden to get involved in wars of foreign adventurism to secure the steady supply of mineral slime from lands of Islamic fascism?

    We could build hundreds and hundreds of passively safe new nuclear power plants immune to events like Fukushima, Chernobyl and TMI, and use the energy therefrom to produce via either the Fischer–Tropsch process as much liquid hydrocarbon fuels from our abundant coal reserves or, via the silver iodine thermo-chemical process, as much hydrogen from water as we could possibly need for tens of thousands of years.

    Again, I cannot resist. Here is the GEH ESBWR (click on the triangle in the Media Gallery field at the following web link to watch the animation):

    Or the Westinghouse AP-1000 (the animation isn’t as polished, but just click on the triangle beneath the diagram to watch the passive core cooling system in action here):

    And to consume the long lived actinides from the used nuclear fuel (forever making long-term geologic repository a moot point), there’s the GEH PRISM (there’s only a PDF file on this; no really good animation that I have found so far):

    Low cost, safe, clean, abundant energy is a key prerequisite to economic prosperity. But what do we do? Tax and spend with no real planning for the future. There will be more wars for natural resources because of our greed. As St. Paul states in 1st Timothy 6:10, “For the love of money is a root of all kinds of evil.”

  2. Mac,

    This is an outstanding post.

    Next, we can anticipate a USA credit-rating agency downgrade.

    Uncertainties and risks accompanying today’s stock market euphoria: annually $1,000,000,000,000.00 deficits/more debt, $60,000,000,000.00 more tax receipts. Does nothing to curb spending.

    This doesn’t improve the economic outlook. In couple months they will confront another debt ceiling fiasco – dems focus will be on tax increases: will target deductions, credits and so-called loop-holes. This will be adverse for the economy, cuts consumer spending and cash flows, it will not touch the real crisis: government spending; and likely America will go two months without being able to incur an additional dollar in debt courtesy of the debt ceiling.

    In conclusion, perpetual (Why still needed three years after the recession ended?) fiscal and monetary stimuli are unsafe, unsound, and unsustainable.

  3. If I heard it correctly, the bill also enacts $1.5 billion of spending cuts per year, a ratio of 20:1. Republicans had been complaining about a plan that with a 1:5 ratio a few months ago. Nice job negotiating, fellas.

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