Fiscal Cliff Deal: Terrible, But it Could Be Worse

The faux drama in Washington is finally over. The misfits in Washington reached a deal on the fiscal cliff.

Republicans and Democrats managed to come together and decide that they should get a bigger slice of what the American people earn. Gee, what a surprise.

First, the good news:

……

Oh, wait, there isn’t any.

Now for the bad news.

- The top tax rate will increase to 39.6% for entrepreneurs, investors, small business owners, and other “rich” taxpayers making more than $400,000 ($450,000 for married couples). This is Obama’s big victory. He gets his class-warfare trophy.

- The double tax on dividends and capital gains climbs from 15% to 20% (23.8% if you include the Obamacare tax on investment income).

- The death tax rate is boosted from 35% to 40% (which doesn’t sound like a big step in the wrong direction until you remember it was 0% in 2010).

- The alternative minimum tax will still exist, though it will be “patched” to protect as many as 30 million households from being swept into this surreal parallel tax system that requires people to use a second method of calculating their taxes – with the government getting the greatest possible amount.

- Unemployment benefits are extended, ensnaring more Americans in joblessness.

- Medicare spending is increased as part of a “doc fix” to increase reimbursement payments for providers.

This is sort of like a late Christmas present, but we must have been naughty all year long and taxpayers are getting lumps of coal.

That being said, I was expecting the final outcome to be even worse, so this deal almost seems like a relief.

Sort of like knowing that you were going to have your arm amputated, but then finding out that at least you’ll get some anesthetic. You’re not happy about the outcome, but you’re relieved that it won’t be as bad as you thought it would be.

But let’s not delude ourselves. This deal is not good for the economy. It doesn’t do anything to cap the burden of government spending. It doesn’t reform entitlement programs.

And we may even lose the sequester, the provision that was included in the 2011 debt limit that would have slightly reduced the growth of government over the next 10 years.

What a dismal start to 2013.

This article originally appeared on the Cato@Liberty blog.

How much do you trust the information in this article?

Daniel J. Mitchell

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy. Mitchell is a strong advocate of a flat tax and international tax competition. Prior to joining Cato, Mitchell was a senior fellow with The Heritage Foundation, and an economist for Senator Bob Packwood and the Senate Finance Committee. He also served on the 1988 Bush/Quayle transition team and was Director of Tax and Budget Policy for Citizens for a Sound Economy. His articles can be found in such publications as the Wall Street Journal, New York Times, Investor's Business Daily, and Washington Times. He is a frequent guest on radio and television and a popular speaker on the lecture circuit. Mitchell holds bachelor's and master's degrees in economics from the University of Georgia and a Ph.D. in economics from George Mason University.

MORE FROM

Vatican shuts off historic fountains in the midst of devastating drought

Officials say it's the first time they can recall ever shutting off the Vatican's fountains.

‘Hot Mic’ podcast: Charlie Gard, human trafficking, Kushner denies collusion with Russia

What you need to know for Tuesday, July 25.

The last baby orca to be born at SeaWorld dies after serious health issues

Kyara was the last baby orca to be born into SeaWorld's controversial breeding program.

President Donald Trump turns Boy Scout Jamboree into campaign rally

The president discussed health care, Hillary Clinton, Obama, big yachts and more to 40,000 Boy Scouts and volunteers

This child kept HIV in remission for 8 years without drugs. Here’s what that really means.

More than eight years after his initial treatment, the child is still in remission.

Driver charged with human trafficking after 30-40 people found locked in fatally hot tractor-trailer

The charge against James Matthew Bradley, the alleged driver of the vehicle, could carry a punishment as severe as the death penalty.

Vatican shuts off historic fountains in the midst of devastating drought

Officials say it's the first time they can recall ever shutting off the Vatican's fountains.

‘Hot Mic’ podcast: Charlie Gard, human trafficking, Kushner denies collusion with Russia

What you need to know for Tuesday, July 25.

The last baby orca to be born at SeaWorld dies after serious health issues

Kyara was the last baby orca to be born into SeaWorld's controversial breeding program.

President Donald Trump turns Boy Scout Jamboree into campaign rally

The president discussed health care, Hillary Clinton, Obama, big yachts and more to 40,000 Boy Scouts and volunteers

This child kept HIV in remission for 8 years without drugs. Here’s what that really means.

More than eight years after his initial treatment, the child is still in remission.

Driver charged with human trafficking after 30-40 people found locked in fatally hot tractor-trailer

The charge against James Matthew Bradley, the alleged driver of the vehicle, could carry a punishment as severe as the death penalty.