Fiscal Cliff Deal: “I’m Not Crazy; My Mother Had Me Tested.”

I don’t have much to add to this fiscal cliff deal nonsense; I’ve been resigned to whatever shafting has been coming our way from exalted leader on behalf of his corporate puppet-masters for awhile now…but let’s take this opportunity to reaffirm a few key points:

1. Politics is theater. That is so, mostly because Obama and many (if not most) Democrats pretend towards so-called “progressive values” to satisfy a base that still doesn’t see that they are as beholden to big money as their Republican counter-parts.
2. People who watch mainstream media will generally be fed either out and out lies or disinformation & misdirection to keep them confused about real-world financial matters.
3. As much as I can sometimes doubt the fact that there is no representation of the people’s interests, and so we have been taken over – “democracy” has been subverted – as much as I can sometimes doubt that perception as “extreme” or “delusional”, this deal and the attendant hoopla confirms my “vaguely radical” suspicions.

But don’t take my word for it. Let’s start with Business Insider’s account – they seem to hit all of the highlights:

Great News, Rich Americans! Congress Just Raised Taxes On Workers While Saving Investors Billions

Well, I suppose we could stop right there with the headline, but perhaps some of you would like the details?

Most of the attention around the Fiscal Cliff has been focused on income taxes.

The way the deal went down, a tiny portion of American taxpayers — households that earn more than $450,000 per year — will see their income taxes rise modestly, from 35% to 39.6%.

…

By not addressing the payroll tax, the Fiscal Cliff deal will also result in a tax hike for all working Americans, including those in the middle and poor classes. All income up to $110,000 will now be socked with a 2 point increase in the payroll tax, from 4.2% to 6.2%, which will pluck $2,000 out of the pockets of families making $100,000 a year.

So, already this is bad for two reasons: the $450,000 cut-off is a far cry from $250,000 and besides forfeiting significant revenues (if that was the goal) it also lessens the effectiveness of taxation to smooth out inequality (not that anyone thought that was a real goal, though it should be) and it means that a significant number of the people affected will be taking their income in capital gains type money, instead of salaries (which we’ll get to in a minute). So that’s the first problem with just the surface of the deal. As FireDogLake notes, even staunch Obama-friendly wonks like Ezra Klein are forced to mention this part of the betrayal.

President Obama campaigned for re-election on one central theme: those who’ve done well in America should pay more of their fair share. If you asked the lowest-information voter of 2012, s/he could probably tell you that Obama wanted to raise taxes on people making more than a quarter-million dollars a year. $250,000 was a number woven into every speech he made.

And, now, he seems to have abandoned even this benchmark as part of his ‘negotiation’ on the fiscal cliff.

Ezra Klein, loyal Administration mouthpiece, has noticed:

But after Obama won on a platform that was barely about anything aside from letting those tax cuts expire, it seemed inevitable he’d get it done. It was his due.

To the GOP’s delight, that no longer seems to be the case. In the Obama-Boehner negotiations, the White House offered to raise the threshold from $250,000 to $400,000. McConnell, in his negotiations with Harry Reid and now Joe Biden, has been trying to raise that to $500,000. It’s clear to the Republicans that they will get past the fiscal cliff with a smaller tax increase than they thought. Perhaps much smaller. Huzzah!

So, we shouldn’t gloss over this part of the betrayal, but we have so much more to get to…the second part of just the initial betrayal is that by allowing the payroll tax cut to expire, they have let one of the most effective tax-cut-stimulus initiatives move from effectively adding to demand to subtracting (from today’s baseline) from demand. People who will generally spend their money – working people across the entire income spectrum – just lost purchasing power.

To the uninitiated, it might almost look like the mythic “shared sacrifice”, although that logic escapes me, but it should be noted that even if you took equally from the very rich and from everyone else, the impact on aggregate demand is more when you take money from people who will spend it vs when you take it from people who will invest it anywhere in the world that finds high returns – whether inflating asset bubbles or not. But of course that isn’t what really happened – we didn’t “share in the sacrifice” – from Business Insider again:

Dividend taxes for households making more than $450,000 per year will rise from 15% to 20% (plus an additional 3.8% surcharge for Obamacare, to a total of 23.8%). But they won’t rise all the way to 39.6%, which they were scheduled to rise to without a Fiscal Cliff deal. Meanwhile, dividend taxes for those earning less than $450,000 a year will remain at 15% (18.8% with the surcharge, for those with income between $250,000 and $450,000). So the richest Americans have dodged a big tax bullet.

Importantly, the dividend tax deal will disproportionately help the richest Americans:

• 47% of all dividend income is earned by the 3.8% of American households that make more than $200,000 per year (2009 tax data).
• Households that make more than $200,000 collect a total of $70 billion of qualified dividends per year (2009). This tax change will save these households about $14 billion a year vs. the pre-deal tax rates.
• The top 400 highest earning taxpayers collect about $10 billion a year in dividends, or $25 million apiece. This tax change will save these folks a BOAT LOAD of money: About $2 billion in total, or an average of about $5 million apiece (2009 data).

In other words, the tax deal that Congress just agreed to will raise $125 billion from increased payroll taxes from all working Americans (poor and middle class alike), while saving the richest Americans at least $20 billion in dividend taxes. (my emphasis)

So much for the delusion of “shared sacrifice.” But in case you are interested in getting your head straight after all this corporate owned mainstream media disinformation, let me provide you a few choice links for further consideration:

• Michael Hudson continues debunking the fiscal cliff nonsense in part three of his essay series (I posted the previous essays as one piece yesterday, but they are also available at the top of his current piece)…
• Matt Stoller looks at 8 corporate subsidies in the current fiscal cliff bill – that’s right! corporate handouts while we raise taxes on working people.
• Here, CounterPunch and FireDogLake make similar observations that Obama is in no way “on our side” nor is he being “bested” by sly Republican negotiators.
• Brad DeLong doesn’t understand Obama, and he’s half a neoliberal himself.
• The NewEconomicPerspectives folks are blowing a gasket – There is no deficit crisis, but there is a jobs crisis! Here, Here and Here.
• And finally, Steve Keen tried to charm some congressional staffers into understanding the “fiscal cliff” situation, with powerpoint slides and everything, at the behest of Rep. Dennis Kucinich – it was a valiant effort, worthwhile if you have 40 minutes, but largely unsuccessful, as current events confirm.

Anyway… As far as I am concerned, the only positive takeaway from this plutocratic “Bazinga” is that it eases the fears that my “vaguely radical” position is somehow misinformed… but obviously “I’m not crazy! My mother had me tested.”

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