The opening positions of the actors in the fiscal cliff scam appear intractable and also to be much ado about nothing. The impact ($42 bn) of allowing expiration of the Bush tax cuts on those making over $250k is a spit in the ocean in comparison to the $3.6 trillion the government spends each year. Don’t misunderstand, I am not arguing that this restored tax shouldn’t be done as an element of sounder fiscal policy. I am simply suggesting it really doesn’t amount to a hill of beans.
Of course my theory all along is that this is a pretend game that carries out a facade that there are actually ’two parties’ in Congress who are standing on some principles. That is not the case, so as this Kabuki Theater gets played out, remember the ultimate goal is to protect the looting interests of the kleptocratic oligarchs who really call the shots. Already, reference to a “small package”, or a “down payment” on a “deal” is becoming common.
In terms of tax expect something like this: the relief from the Alternative Minimum Tax (AMT) will be extended, the tax cuts for low to middle income families will be reenacted, most, but not all, of the defense spending cuts will be reversed. However the payroll tax cut will probably not be extended, and tax rates on high income earners will increase a few percentage points to the Clinton era levels. The impact of the fiscal cliff on spending ($135 bn) is also minor compared to the $3.6 trillion in spending.
source: Bruce Krasting
The next chart from Trim Tabs shows the debt problem in spades. Total Federal debt is now a whopping two and a half times after tax income. You can see that even if after tax income were to grow at 4% annually, the growth of Federal debt would outstrip it by four times that amount.