In spite of Senators McConnell and Reid and Vice-President Biden apparently reaching an agreement on taxes, the House of Representatives will not vote on the deal tonight. At midnight, we go over the fiscal cliff. If this is not reversed within the first week or ten days of the next Congress (convening January 3), the projection is that we will enter a new recession by the end of February at the very latest.
Your employer, if you have one, and his/her payroll person, department or outside service is about to go slightly insane. They will have to raise everyone’s withholding and payroll taxes as of tomorrow, possibly in the middle of a pay period, and, if a deal goes through in a week or so, reduce those taxes again, and possibly retroactively.
State unemployment offices are about to get completely snarled. Persons who qualify for extended benefits, and have passed the 26-week mark, will lose their benefits at midnight, but may get them back next week.
And then things start spreading out – no incomes for the unemployed and higher withholding for the employed mean less money in the economy, and that not only slows our recovery (which has been moving forward like molasses in January but at least moving forward) but it starts shrinking our economy.
I was just notified that I’m getting a 2% pay raise effective January 1. The increase in my payroll taxes will be 3.45% and in income taxes, about 5%. I’m gaining 2% and losing 8.45%. Thanks guys.
The Senate negotiations had reached a deal on taxes. Rates would return to the Clinton era 39.5% for incomes over $400,000 for individuals, $450,000 for couples. The unemployment extended benefits would be protected and the payroll tax “holiday” continued. Capital gains taxes for gains less than $400,000 a year individual and $450,000 couple would remain at 15% but 20% for gains over that threshold. But, for some reason only known to Speaker John Boehner, the House will not vote tonight on the tax portion of an agreement.
Last week, Speaker Boehner threw in the towel and punted the negotiations to the Senate after failing to get his own “Plan B” passed by his own caucus. He may believe that there would not be enough Republicans willing to vote with Democrats to pass the Senate deal, not even among those permanently leaving the House who would have nothing to lose by voting responsibly, but there might be after the new Congress is sworn in. On the other hand, all those Republicans who have signed the Norquist pledge could vote for the agreement because it will be “lowering” taxes on 98% of us and not raising them on 2% of us.
And if the idea of putting us and our employers and our state governments through this roller coaster makes sense to you, you are one up on me, ‘cause I don’t.