Last night's passage of the fiscal cliff agreement in the House of Representatives highlights a few important points: that Washington is broken, that a leaderless House GOP is in chaos, that Eric Cantor and John Boehner are working against each other and at cross-purposes, etc. You're going to hear a lot about that in the coming days, so I'm not going to waste your time writing a post you'll be able to read pretty much anywhere else.
Instead, I'm going to use the fiscal cliff deal to demonstrate how Republican explanations of economics are complete BS. As part of the deal (or, more accurately, because the deal completely ignores it), the payroll tax cut holiday will expire, hitting middle- and lower-income workers the hardest. Meanwhile, households over $450,000 and individuals making $400,000 or more will also see their taxes go up. Here's a fun game: guess whose tax hike will slow the economy more, the wealthy's or the rest of us?
Associated Press:
The higher taxes on the wealthy will probably slow the economy a little bit. But a bigger drag would come from a tax increase Democrats and Republicans aren’t even bothering to fight over: the end of a two-year Social Security tax cut. The so-called payroll tax is scheduled to bounce back up to 6.2 percent this year from 4.2 percent in 2011 and 2012, amounting to a $1,000 tax increase for someone earning $50,000 a year.
“It’s a huge hit,” says Joel Naroff, president of Naroff Economic Advisors. “It hits people whether they’re making $10,000 or they’re making $2 million. It doesn’t matter who you are... The lower your income, the more of your income you’re (spending). So if your taxes go up, it’s going to come out of your spending.” And that is bad news for an economy that is 70 percent consumer spending.
Mark Zandi, chief economist at Moody’s Analytics, calculates that the higher payroll tax will reduce economic growth by 0.6 percentage points in 2013. The other possible tax increases — including higher taxes on household incomes above $450,000 a year — will slice just 0.15 percentage points off annual growth, Zandi said...[CLICK TO READ FULL POST]
